KUALA LUMPUR (Aug 7): Sealink International Bhd (KL:SEALINK), which builds and operates offshore support vessels, will return to the black this year, thanks to higher utilisation and charter rates, said Hong Leong Investment Bank (HLIB).

The blended fleet utilisation will likely rise to over 68% this year, from about 60% in 2023, driven by the robust offshore maintenance activities amid an “acute” shortage of vessels, HLIB said in an unrated note. Daily charter rates, or DCR, have also improved “drastically”, the house said.

After nine consecutive years of net losses, Sealink may be “staging a huge comeback” with a core net profit of RM22.5 million in 2024, the house said.

No institutional analysts cover the stock.

Shares of Sealink rose as much as 8.1% or 2.5 sen to 33.5 sen on Wednesday. The stock has racked up a 91% gain so far this year, partly aided by a turnaround in the first quarter of its financial year 2024 (1QFY2024) and elevated crude oil prices.

Based in Sarawak, Sealink owns 19 active offshore support vessels (OSVs) mainly chartered to the oil and gas industry. The company also has a shipyard in Miri, which has built 68 vessels since 1999.

Sealink is also aiming to secure a few vessels to be chartered under Petronas’ upcoming production operations vessels (POVs) programme, said HLIB. 

“Nearly all vessels are currently chartered under spot rates, until the POV awards are officially concluded,” likely in the latter part of 2024, the house noted.

Beyond 2024, Sealink still has three currently inactive vessels and is awaiting spare parts for dry-docking, which are slated to be completed by December this year, and the return of the vessels to service could provide further utilisation upside in 2025, HLIB said.

The house is projecting further earnings growth of 31% in 2025, backed by an even higher fleet utilisation rate of 75% and daily charter rates of RM33,000. All in all, Sealink is expected to report a core net profit of RM29.5 million for the next year.

In terms of valuations, Sealink is currently trading at about seven times the projected earnings for 2024, and HLIB values the stock at 52 sen, based on 10 times 2025 earnings per share. Still, it is a discount to the 14-times earnings multiple that the house typically values energy services and equipment companies at, HLIB noted.

“We view Sealink as a laggard in the OSV space, due to its undemanding valuation amid an imminent earnings upcycle,” the house added.