RAPID, rigs, Indonesian OSVs and build-to-stock (BTS) risk- reward were highlights during our marketing trip.
South China Sea’s geopolitical risks, global capex cuts and rig oversupply were some of investors’ concerns.
Our key BUYs are KNM, Perdana Petroleum, Ezion and Nam Cheong.
While institutional investors remained keen on the MY-SG O&G services sector, they were concerned about: i) rising political tensions in the South China Sea; ii) jack-up oversupply from new rigs entering the market and the rig replacement cycle; and iii) risks associated with the build-to-stock (BTS) model.
Stock wise, investors’ interests were mainly in Malaysia-listed KNM, Perdana Petroleum and UMW OG, and Singapore-listed Ezion, Nam Cheong and Vard. They were generally receptive of some of our new ideas in Malaysia like SILK and Coastal Contracts. Stocks not under our coverage — Pacific Radiance, PACC Offshore, Ezra, Logindo and Wintermar — were also discussed.
We remain overall positive on the O&G services sector. We like KNM for its direct exposure to RAPID. Securing RAPID projects would lift our earnings and target price by up to 50%. Getting the Peterborough waste-to-energy project off the ground in 4Q14 could drive further interest and re-rate the stock further.
Perdana Petroleum and Ezion are our top picks for OSV exposure, and UMW OG and Yinson for jack-up rigs and FPSOs respectively. Nam Cheong and Vard are our preferred stocks in shipbuilding. SILK and Coastal Contracts are interesting (both Not Rated), from the perspective of value and earnings growth potential.
South China Sea’s geopolitical risks, global capex cuts and rig oversupply were some of investors’ concerns.
Our key BUYs are KNM, Perdana Petroleum, Ezion and Nam Cheong.
What’s New
We met Malaysia, Singapore and Hong Kong fund managers in July. Discussions centred on: i) PETRONAS’ RAPID project; ii) the outlook for jack-up rigs, FPSOs, OSVs, shipyards and fabrication; and iii) fresh stock ideas.What’s Our View
The RAPID theme generated strong interest in several O&G stocks. Indonesia-centric OSVs (which we have yet to cover) too received attention. However, there were mixed views on: i) the drilling market; and ii) our revised valuation methodologies for rigbuilders, coupled with their order-win momentum.While institutional investors remained keen on the MY-SG O&G services sector, they were concerned about: i) rising political tensions in the South China Sea; ii) jack-up oversupply from new rigs entering the market and the rig replacement cycle; and iii) risks associated with the build-to-stock (BTS) model.
Stock wise, investors’ interests were mainly in Malaysia-listed KNM, Perdana Petroleum and UMW OG, and Singapore-listed Ezion, Nam Cheong and Vard. They were generally receptive of some of our new ideas in Malaysia like SILK and Coastal Contracts. Stocks not under our coverage — Pacific Radiance, PACC Offshore, Ezra, Logindo and Wintermar — were also discussed.
We remain overall positive on the O&G services sector. We like KNM for its direct exposure to RAPID. Securing RAPID projects would lift our earnings and target price by up to 50%. Getting the Peterborough waste-to-energy project off the ground in 4Q14 could drive further interest and re-rate the stock further.
Perdana Petroleum and Ezion are our top picks for OSV exposure, and UMW OG and Yinson for jack-up rigs and FPSOs respectively. Nam Cheong and Vard are our preferred stocks in shipbuilding. SILK and Coastal Contracts are interesting (both Not Rated), from the perspective of value and earnings growth potential.
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