Don't buy shipbuilders, oil and gas services companies!

If someone were to ask me, whether do I think it is a good time now to pickup shares in Nam Cheong or Ezion, I would definitely say no. Let me explain.

Firstly, demand for their products and services has almost become non-existent. The was a boom in new offshore supply vessels and Nam Cheong probably benefited over the last five years leading to its public listing. However, with deliveries still taking place globally amidst the low oil price, there has been no new orders. For Ezion, the demand for its offshore maintenance services is recurring but I believe several of the oil and gas companies have announced budget cuts and will try to manage their operating expenses by either changing their maintenance regimes or asking for lower dayrates.

Secondly, there has been an oversupply situation in both the products and services markets. All the vessels that have been ordered over the last five years are coming online and this will depress the charter rates these vessels can obtain. When charter rates are lower, there is less incentive to order new vessels as the rate of return on these vessels have fallen. The same would apply to Ezion. There is an increase in the number of vessels, the lift boats, which can support offshore maintenance work.