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Monday March 24, 2008
By LAALITHA HUNT
CONTINUOUS high demand for vessels in the region is expected to drive growth of shipbuilding companies, industrial players observed.
Strong activities in the oil and gas sector to step up oil discoveries due to a surge in oil prices and high charter rates are said to fuel the demand for vessels.
However, despite the strong demand, supplies of vessels remained tight in view of the long lead-time to construct a vessel. Hence, shipbuilders are expected to remain busy catering to the rising orders.
Shin Yang Shipping group, a broad-based shipping company in Sarawak, is confident of strong growth in its revenue this year from its shipbuilding business.
Group general manager Capt Ting Hien Liong said the company's two shipyards in Miri and Bintulu were currently fully occupied catering to the escalating demand from the oil and gas industry in building its offshore supply and utility vessels.
He added that the robust growth in the transportation industry for ocean cargo had also resulted in many customers placing orders for general cargo ships.
“We expect revenue to increase by 50% from RM200mil to RM300mil for this financial year ending Dec 31 driven by the demand from these sectors,” he told StarBiz.
Shin Yang group, established in the early 80s, concentrates on regional and domestic shipping services, ship building, repairing and conversion. It is also involved in engineering fabrication and offshore structure fabrication.
On its expansion plans, he said Shin Yang planned to build another shipyard in Tanjung Manis in Sibu to cater to the growing demand.
“The new yard will double our shipyard size from 160 acres to 330 acres,” Capt Ting said, adding that the new shipyard would also provide for repair works as well as modifications and conversion.
“We also modify ships for customers to accommodate changes in merchant rules and regulations,” he said.
Capt Ting said that the company's order book was at RM500mil with deliveries stretching into 2009. This does not include the order for six units of general cargo ship totalling RM420mil contracted via its sister company, Shinline Sdn Bhd.
“The six units would be completed by 2011,” he added.
Capt Ting explained that one of the reasons why the company had a low order book compared to its peers was because it practised the build and sell concept.
“We keep a few half-built vessels in our stock and customers are able to book these vessels if they are happy with the specifications,” he said.
He noted that this was one way to speed up delivery time taken for orders.
“We also pre-book the engines required for these vessels as one of the reasons for the lag in delivery time was due to the waiting period for these engines,” he explained.
He stressed that speedy delivery time was its main attraction in drawing customers from as far as Europe, Australia and the Middle East.
Shin Yang also employs the services of shipbrokers based overseas to promote its company and its merchandise.
These efforts have contributed to the increase in its client base consisting of 60% foreigners while the rest are local.
Capt Ting stressed that the steady uptrend in steel prices over the few years had not diminished demand for vessels.
However, the shipbuilder has experienced an increase in operation expenses but managed to transfer the cost to customers.
“Besides increasing our selling price for vessels, we are also commanding higher charter rates for our ships,” he said, adding that the company had also aggressively expanded its transportation services for ocean freight to defray rising costs.
Analysts said the financial performance of shipbuilding companies remained unaffected despite the rise in the costs of raw materials such as steel.
An analyst with Kenanga said Coastal Contracts Bhd had managed to maintain its profit margin at a comfortable level despite the heightened raw material costs.
“Coastal Contracts have been minimally impacted as it was able to command a higher selling price to absorb these price increases,” he said.
According to an analyst of another local brokerage, vessel fabricator Boustead Heavy Industries Bhd locks-in the price of steel when it secures contracts from clients to mitigate the risk of escalating prices.
“However, steel prices only account for 15% of vessels. The major component of steel will actually be the vessel engines and equipment that makes up 70% of total cost,” he said.
An analyst with TA Securities added that the escalating costs of raw materials being a global phenomenon, would have affected all shipping companies in a detrimental manner.
“However, the overwhelming demand for vessels due to increased capital expenditure spending by oil majors, has cushioned the effect of mounting costs,” he added.
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