Oil - Service, Equipment, Pipelines etc

[winston]

Not vested. From CIMB:-

Offshore & Marine - Confluence of risks

We downgrade the offshore & marine sector, led by the big caps, in response to a confluence of risks which may lead to a challenging operating environment and further depress valuations.

We cut our order assumptions for Singapore rig builders on the back of:-
1) a review of current regulations on offshore drilling by the Obama administration which may delay international development plans;
2) orders falling below expectations;
3) risk of further postponements in Petrobras orders from 2010 to 2011; and
4) contagion risks from Europe and the possibility of lower global growth which may decelerate global E&P spending.

We also lower our target valuations for the rig builders to 15x CY11 P/E (from early-mid-cycle valuations of
18x CY11 P/E) as we believe they are unlikely to trade up to previous peaks in the foreseeable future.

We now expect earnings to decelerate from FY11 and uncertain indicators to precipitate a de-rating of the sector towards its historical mean.

[winston]

Not vested

RIG-BUILDERS

DMG & Partners said in a report, bid prices submitted by Singapore-based yards Keppel and Sembcorp Marine for Petrobras' tender of seven drilling rigs, were at least 10 percent higher than those submitted by Brazilian yards, which put Singapore yards at risk of losing out on projects.

Among the two Singapore rigbuilders, Keppel has the lower-priced bid for Petrobras seven drillship package and two deepwater drilling rigs.


Source: Reuters

[winston]

Not vested. From OCBC:-

Oil and Gas sector: Overweight - diverse growth trajectories

The FTSE Oil and Gas index is now back in positive territory after a divergence with the STI emerged in late Apr, mainly due to the Gulf of Mexico oil spill.

The sector has outperformed the broader market in the past few months, helped by improving sentiment on the rigbuilders, which have outperformed the rest of the oil and gas stocks under our coverage YTD.

Both rigbuilders are likely to see more orders for high-spec jackups. The push for even more technical assets is also likely to continue, benefiting companies that do not scrimp on R&D. The outlook for the smaller and lower-spec offshore support vessels remains dim.

Going into 2011, we maintain our OVERWEIGHT rating on the sector though different stages of the value chain experience different demand and supply dynamics. As the global economy continues its recovery, oil prices are likely to remain high enough to sustain capital expenditure.

Our preferred picks are Keppel Corporation [BUY, FV: S$12.50] and SembCorp Marine [BUY, FV: S$5.70] as likely beneficiaries based on underlying trends.

http://www.remisiers.org/cms_images/Mar ... 02-OIR.pdf

[winston]

Not vested. From DMG:-

Shipyard disappointment in Brazil?

The news: According to an Upstream article, an engineering director with Petrobras, Renato Duque, has stated that, in principle, only one seven-rig package will be awarded.

Other key takeaways are:

(1) Petrobras will be ruling on some final disqualification appeals and start negotiations with the lowest bidder for the drillship package. The rigs are expected to be delivered between 2014 and 2017. The article also highlighted that there is a chance Petrobras may negotiate with the participating shipyards to order fewer rigs per yard and that a
re-tender process may be considered.

(2) There are possible awards in the second category for two Petrobras owned rigs – one per yard and the bids are being analysed by Petrobras. EAS (Estaleiro Atlantico Sul), a unit backed by Samsung Heavy Industries and Keppel are the two lowest bidders for the second category.

(3) Petrobras is also keeping its options open for contracting chartered rigs and these rigs must also be constructed in Brazil. Keppel is involved in six out of the 12 rigs proposed to Petrobras.


Our comments: Should this piece of news from Upstream comes true, share prices of Keppel and Sembcorp Marine are likely to take the news negatively given that market expects Petrobras to award the full four packages to four different bidders. Estaleiro Atlantico Sul (EAS), a unit backed by Samsung, is the lowest bidder with a bid of US$4.65b to build seven drillships, 10% lower than the prices submitted by Keppel and Sembcorp and within Petrobras working budget of US$700m/rig.

We have previously highlighted that there is potential downside risk to the Petrobras drillship tender given the keen competition and aggressive pricing by domestic yards.

Between the two Singapore-based shipyards, Keppel is in a better position to win some orders from the second package in which they have the second lowest bid to build a semi-submersible rig, and the chartered units whereby Keppel is working together with rig owners.

We have a Buy rating on Keppel (TP: S$12.00) and a Neutral rating on Sembcorp Marine (TP: S$4.70) and downward adjustment to TPs may be on the cards if the yards fail to win the drillships orders.

http://www.remisiers.org/cms_images/15D ... marine.pdf

[winston]

Offshore & Marine

Crude oil prices (WTI) plunged 20% in the past two weeks on growing fear of a recession and cut in 2011 demand forecasts by OPEC (-150,000 bpd) and EIA (-60,000 bpd).

While the correction has been steep, crude oil prices remain above the investment hurdle of most oil majors and we believe exploration and production (E&P) capex spending will stay high.

Latest data released by the American Petroleum Institute (API) on Tuesday (9 Aug 2011) showed that crude oil inventories declined 5.2m barrels and we believe this will lend downside support to oil prices.

Crude oil prices are now trading at the US$75-85/bbl range, and we think this level is more sustainable over the longer run.

We maintain OVERWEIGHT on the offshore & marine sector. Valuations for big-caps are compelling at 12-14x FY11 P/E and are offering 3-4% sustainable dividend yield.

Our top pick is Sembcorp Industries (BUY; TP: S$6.25) given high visibility on earnings growth from the Utilities unit and our least preferred stock is Swiber Holdings (Neutral; TP: S$0.87) due to strong competition for jobs in the shallow water space and high gearing level.

We may review our sector view with a downward bias depending on the trend of crude oil prices going forward.

Source: DMG

[winston]

Not vested

DBSV Research is cutting target prices for Offshore & Marine stocks on rising headwinds.

Compared to 2008, order book visibility is weaker for rigbuilders. KEP and SMM’s current orderbook of S$15.5b is lower than 2008’s S$19.8b. Earnings will be at risk in 2012/2013 if new order flows dry up over the next few months due to macro risks.

We reduce our FY12 order wins assumptions by 20-40% in our base case, assuming slower global GDP growth. While the impact on earnings is marginal, we are cutting back our target PE from 18x (+1.5SD) to 13x (mean), new TPs in our base case are Keppel Corp - S$10.38, SembCorp Marine - S$4.80, and SembCorp Inds - S$4.50.

In a recession scenario, order wins could trickle closer to S$3b. Target prices pricing in a recession scenario (PE at -1 SD of 8.7x) will be Kep – S$7.42, SMM – S$3.17 and SCI – S$2.90. We see higher risk of China shipbuilders slipping to trough valuation of 5x.

Orderbook is weaker than 2008, earnings visibility is low. We cut Yangzijiang and JES to HOLD on lowered TP of S$1.10 and
S$0.20, Cosco remains FULLY VALUED, TP reduced to S$1.00.

Source: DBS

[Aspellian]

Orderbook is weaker than 2008, earnings visibility is low. We cut Yangzijiang and JES to HOLD on lowered TP of S$1.10 and
S$0.20, Cosco remains FULLY VALUED, TP reduced to S$1.00.

Source: DBS

Qn - for fully valued - does it mean to HOLD or to SELL??

[winston]

Not vested

RESEARCH ALERT-Daiwa downgrades Sembcorp Marine, cuts Keppel target

SINGAPORE, Aug 24 (Reuters) - Daiwa Capital Markets has downgraded oil-rig builder Sembcorp Marine to hold from outperform and cut its target price to S$3.81 from S$6.05.

The brokerage also lowered its target price for Keppel Corp to S$10.24 from S$13.69 and kept its outperform rating.

STATEMENT: Daiwa said the rig building sector is likely to derate due to the increased likelihood of a recession, but Sembcorp Marine's outlook is less positive than Keppel's as the former faces greater earnings risk due to its lower order book.

Keppel has an order book of S$9.1 billion compared with S$5.6 billion for Sembcorp Marine, but Daiwa has lowered its 2012-2013 earnings per share estimates for Keppel by 1-6 percent to reflect lower forecasts for property income and order wins.

At 0240 GMT, shares of Keppel were 1.6 percent lower at S$8.60, and have fallen 16.4 percent since the start of the year.

Sembcorp Marine shares were 1.5 percent lower at S$3.89, and have lost about 28 percent since the beginning of the year.

Source: Reuters

[winston]

not vested

RESEARCH ALERT-DMG cuts Keppel, SembMarine target prices

SINGAPORE, Sept 7 (Reuters) - DMG & Partners has cut its target price for Singapore oil rig builders Keppel Corp and Sembcorp Marine but kept its buy rating for both companies.

DMG's new target for Keppel Corp is S$11.03, down from S$13.35, while it now says SembMarine is worth S$5.46, versus S$6.25 previously.

STATEMENT: DMG has lowered its 2012 earnings per share estimates for Keppel and SembMarine by 3-5 percent, to account for lower order wins as it expects rig owners to slow down their spending on new rigs.

"While share prices could see near term weakness on rising concerns over new orders and potential cancellations, we think the offshore and marine sector is more resilient today given stronger customer profile for existing orders, continued pickup in rig day rates," said DMG in a report.

The brokerage said it prefers Keppel over SembMarine in times of uncertainty given the former's stronger earnings visibility in 2012.

At 0158 GMT, shares of Keppel were 0.12 percent lower at S$8.63, having fallen 16 percent since the start of the year.

SembMarine shares fell 0.52 percent to S$3.83 and are down about 29 percent since the start of the year.

Source: Reuters

[winston]

not vested

Singapore Hot Stocks-Rig builders fall as oil price weakens

SINGAPORE, Sept 29 (Reuters) - Shares of Singapore rig builders fell on Thursday, following the weakening oil prices as the global economic outlook looks increasingly uncertain.

At 0105 GMT, shares of Keppel Corp and Sembcorp Marine were down 2.6 percent and 2.4 percent respectively. The broader Straits Times Index <.FTSTI> was 1 percent lower.

Shares of Keppel, the world's largest rig builder, dropped by as much as 3.7 percent in early trade while rival Sembcorp Marine fell as much as 2.9 percent.

U.S. crude oil futures lost more than $1 a barrel to below $80 in early Asian trade on Thursday as investor concerns mounted about Europe's attempts to solve its sovereign debt problems.

Source: Reuters