Singapore’s Sizzling Offshore Support Services Industry

The offshore support services industry in Singapore seems to be gathering a lot of attention recently with some companies in the space being able to enjoy really good economics. For instance, Ezion Holdings (SGX: 5ME), one of the leading players in this industry, enjoys a gross profit of more than 40% and was able to more than double its earnings in 2013.

Currently, more than half a dozen companies listed in Singapore have exposure to this space and there would be a new addition soon with PACC Offshore Services Holdings (POSH) – a company controlled by the richest man in South East Asia, Mr. Robert Kuok – preparing its listing here.

The larger companies in the offshore support services space, besides Ezion Holdings, also include Ezra Holdings (SGX: 5DN). Both Ezion and Ezra are companies with billion-dollar market capitalisations and both have been expanding very aggressively to increase their fleet size and breadth of services.

Ezion Holdings currently own a wide range of vessels that include self-elevating liftboats, different type of barges, and even a wind turbine installation vessel. Ezra Holdings, on the other hand, has been focusing more on its deepwater subsea division, describing it as the company’s “Next lap growth strategy”.

Other smaller players in the industry include Otto Marine (SGX: G4F), Pacific Radiance (SGX: T8V), Swiber Holdings (SGX: AK3) and Mermaid Maritime (SGX: DU4).

Otto Marine, which had traditionally been a shipbuilder, has in recent years expanded aggressively into the offshore support vessel (OSV) chartering space. It has been quite successful in negotiating that transition as it managed to grow revenues from its ship chartering segment from US$12.2 million in 2009 to about US$266 million in 2013. That is a growth rate of more than 100% every year.

Elsewhere, Pacific Radiance is a newly-listed entity that just went public last November. It currently controls more than 130 OSVs in the region. Top-line growth at the company has also been solid with its revenue almost tripling from US$59.8 million in 2010 to US$168.6 million in 2013.

Foolish Summary

With more than a handful of high growth companies in the offshore support services industry listed right here in Singapore, investors can spoiled for choice.

However, there’s one important thing to take note of: Many of those companies have taken up debt to finance their growth. Therefore, it is important to check up on strength of their balance sheet and be comfortable with the financial risks you might be taking on before you decide to invest in anyone of them.

Since the industry is growing so fast and most of them are expanding so aggressively as well, there is a risk of having an issue of oversupply here if the industry experiences a sudden downturn. If that happens, those with huge debt loads might have difficulties in servicing those loans; these are the companies you might want to avoid.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.