Unlocking the OSV Cycle

For more than a decade, the offshore support vessel (OSV) industry has existed in a state of clinical survival. Following the catastrophic oil price collapse of 2014, the sector entered a period of brutal capital discipline. Operators pivoted to “survival mode,” prioritising balance sheet repair and cash flow preservation over fleet renewal. Between 2015 and 2024, global orders plummeted to a mere 60 units per year—a staggering decline from the 400-vessel annual average seen during the previous decade’s upcycle.

This prolonged drought has created an invisible crisis beneath the waves. While global oil production has continued its ascent, the specialized fleet required to maintain this energy infrastructure has entered its twilight years. As these vessels approach the two-decade mark in some of the planet’s harshest environments, reliability is declining just as maintenance costs soar. The industry is no longer facing a choice; it is facing a mandatory replacement cycle driven by technical obsolescence.

Nam Cheong Limited (NCL) emerges as a definitive case study in strategic timing for this looming cycle. After completing a successful debt restructuring in early 2024, the company is pivoting from preservation to expansion. By maintaining one of the youngest fleets in the sector while possessing a dormant shipyard ready to capture a supply-side shock, NCL is positioned to capitalize on an industry that has fundamentally failed to build for its own future.

The “Geriatric” Fleet vs. the New Guard

In the current offshore landscape, “youth” is the ultimate competitive moat. Spinergie data reveals that global active fleets are effectively geriatric: average ages for Anchor Handling Tug Supply (AHTS) and Platform Supply Vessels (PSV) have climbed to 16 and 18 years, respectively. NCL, by contrast, operates a fleet of 36 OSVs with an average age of just 9 years.

This age gap provides a massive operational advantage. Younger vessels are inherently more fuel-efficient and require significantly less downtime for maintenance—a critical factor for oil majors focused on operational reliability and carbon footprints. Furthermore, NCL’s dominance in the Malaysian market is fortified by its valid Petronas license. As a preferred provider, NCL possesses the institutional weight to secure domestic offshore projects that are largely inaccessible to aging, unaccredited competitors.

“Global fleets are steadily approaching the 20-year mark, where reliability declines and maintenance costs rise… replacement-driven demand is increasingly unavoidable.”

The Silent Yard: Reactivating the RM120m Newbuild Engine

Since 2020, NCL has not recognized shipbuilding revenue, utilizing its 12.6-hectare Miri yard in Sarawak primarily to support its internal fleet. However, the tide is turning toward a “build-to-order” model. Management’s dual-build strategy—utilizing the Sarawak yard for technically complex, high-margin vessels while leveraging Chinese partner yards for standardized, “build-to-stock” designs—provides a level of agility that traditional yards cannot match.

The company is currently adding six self-constructed vessels to its own fleet, expected to contribute RM75 million in annual revenue. This expansion is led by the SKG 520, a sophisticated geo-technical vessel featuring five modular configurations:

• Geotechnical Drilling Rig: For seabed investigations.
• Remotely Operated Vehicle (ROV): For subsea inspections.
• Air-Diving Module: For subsea intervention.
• Survey Suite: Equipped with streamers and sonars.
• Walk-to-Work Gangway: For safe personnel transfer.

NCL is now in “active discussions” for third-party orders. Analysts forecast two third-party newbuild orders worth a combined US$30 million (RM120 million) to be secured in 2026. Given the standard 18-24 month lead time, these orders would likely commence construction in early 2027 for delivery in 2028.

Asset Recycling: Unlocking Balance Sheet Flexibility

NCL is executing a counter-intuitive “fleet reprofiling” strategy: selling assets during a market recovery to fund higher-value growth. Between December 2025 and January 2026, the company divested two PSVs for RM160 million. This move unlocks the capital necessary to fund complex, high-margin projects rather than maintaining hardware approaching the 15-year threshold.

The “recycling” play has further legs. Channel checks identify five additional aging vessels—including the accommodation workboats SK Marco Polo and SK Marathon—with a high probability of divestment. Unlocking the estimated RM135 million in value from these units would provide the liquidity to modernize the fleet without the burden of prohibitive new debt.

The 35% Discount: A Valuation Disconnect

Despite these catalysts, NCL remains significantly undervalued. The stock currently trades at approximately 7x forward P/E, a 35% discount compared to the sector peer average of 11x. This disconnect appears to overlook the robust visibility of NCL’s Core PATMI, anchored by RM1.7 billion in long-term contracts announced since 2024. This backlog provides 64% long-term charter coverage, shielding the company from the volatility of the spot market.

Metric	Nam Cheong Limited	Sector Peers Average
Forward P/E	7x	11x
Fleet Average Age	9 Years	16–18 Years
Contract Backlog	RM1.7 billion	Varies

Deleveraging: The Path to Dividend Resumption

The most compelling pillar of the NCL turnaround is its aggressive deleveraging. Since its March 2024 restructuring, total debt has been on a steep decline, projected to fall from RM492 million in 1Q24 to RM313 million by FY27F.

The financial implications are transformative. Net gearing is projected to collapse from an unsustainable 174% to a lean 12% by FY27F. This strengthened capital structure is expected to generate RM3 million in annual interest savings and, perhaps most importantly for investors, paves the way for a likely resumption of dividends in FY26F.

Conclusion: The Forward-Looking Ponder

As we look toward 2027, the offshore industry is facing a unique supply-side shock. The disciplined “under-ordering” of the last decade has created a vacuum: demand is rising just as the global fleet reaches a wall of technical obsolescence.

The question for investors is whether the market has correctly priced the scarcity of young, high-spec vessels and the strategic value of a reactivated shipyard. For Nam Cheong, the transition from debt management to aggressive cycle-capturing suggests that the most profitable years of the offshore recovery are yet to be recognized.

Final Takeaway: Unlocking a New Cycle through a 9-year fleet age advantage, strategic yard reactivation, and a debt-free trajectory toward dividend resumption.

WATCH THE EXPLAINER VIDEO BELOW:

LISTEN TO THE PODCAST BELOW:

Related stories: Why China Aviation Oil Is The Most Overlooked Story In Aviation