The FTSE Oil and Gas index delivered a strong performance in the first quarter of the year and held steady before slipping in Apr. From mid Jun, however, the higher beta index recovered on hopes that central banks would step up efforts to bolster the global economy injected optimism in the markets. Almost like a mirror image, the index lost steam in Oct before embarking on a recovery again, and we note that despite short to medium term fluctuations, investors who kept the faith during periods of uncertainty were rewarded as the sector would always return into favour. A focused stock-picking strategy would have fared relatively well, and we advocate a similar style in 2013, overweighting companies that are operating in sub-sectors with more favourable demand-supply dynamics. Going into 2013, we remain OVERWEIGHT on the oil and gas sector, preferring Keppel Corporation [BUY, FV: S$12.49], Sembcorp Marine [BUY, FV: S$5.84], Ezion Holdings [BUY, FV: S$1.70] and Nam Cheong Ltd [BUY, FV: S$0.28].
Almost a mirror image in 2H12
The FTSE Oil and Gas index delivered a strong performance in the first quarter of the year and held steady before slipping in Apr. From mid Jun, however, the STI recovered after hopes that central banks would step up efforts to bolster the global economy injected optimism in the markets. Along with better news from the Eurozone, this propelled the higher beta FTSE Oil and Gas index to post a ~20% gain from early Jun to mid Sep. Almost like a mirror image, the index lost steam in Oct before embarking on a recovery again, and we note that despite short to medium term fluctuations, investors who kept the faith during periods of uncertainty were rewarded as the sector would always come back into favour.
Understand the sub-sectors’ dynamics and pick the winners
A focused stock-picking strategy would have fared relatively well in 2012, and we advocate a similar style in 2013, overweighting companies that are operating in sub-sectors with more favourable demand-supply dynamics, and those with strong balance sheets and order books. Stepping into 2013, we expect the local rigbuilders to continue securing orders, albeit at slower pace. The offshore support vessel sub-sector should also see continued recovery as the market situation gradually tilts in favour of vessel owners. Meanwhile, subsea tendering activity remains firm but the downstream EPC players are expected to remain mired in a difficult environment.
Solid long-term fundamentals; near term driven by macro events
We believe that the offshore sector has strong long-term fundamentals as countries have an interest in fulfilling as much domestic demand as possible in order to boost energy security. Investors should be mindful, however, that macro events remain a key driver of the broader sector in the near term. Going into 2013, we remain OVERWEIGHT on the oil and gas sector, preferring Keppel Corporation [BUY, FV: S$12.49], Sembcorp Marine [BUY, FV:S$5.84], Ezion Holdings [BUY, FV: S$1.70] and Nam Cheong Ltd [BUY, FV: S$0.28].
The FTSE Oil and Gas index delivered a strong performance in the first quarter of the year and held steady before slipping in Apr. From mid Jun, however, the STI recovered after hopes that central banks would step up efforts to bolster the global economy injected optimism in the markets. Along with better news from the Eurozone, this propelled the higher beta FTSE Oil and Gas index to post a ~20% gain from early Jun to mid Sep. Almost like a mirror image, the index lost steam in Oct before embarking on a recovery again, and we note that despite short to medium term fluctuations, investors who kept the faith during periods of uncertainty were rewarded as the sector would always come back into favour.
Understand the sub-sectors’ dynamics and pick the winners
A focused stock-picking strategy would have fared relatively well in 2012, and we advocate a similar style in 2013, overweighting companies that are operating in sub-sectors with more favourable demand-supply dynamics, and those with strong balance sheets and order books. Stepping into 2013, we expect the local rigbuilders to continue securing orders, albeit at slower pace. The offshore support vessel sub-sector should also see continued recovery as the market situation gradually tilts in favour of vessel owners. Meanwhile, subsea tendering activity remains firm but the downstream EPC players are expected to remain mired in a difficult environment.
Solid long-term fundamentals; near term driven by macro events
We believe that the offshore sector has strong long-term fundamentals as countries have an interest in fulfilling as much domestic demand as possible in order to boost energy security. Investors should be mindful, however, that macro events remain a key driver of the broader sector in the near term. Going into 2013, we remain OVERWEIGHT on the oil and gas sector, preferring Keppel Corporation [BUY, FV: S$12.49], Sembcorp Marine [BUY, FV:S$5.84], Ezion Holdings [BUY, FV: S$1.70] and Nam Cheong Ltd [BUY, FV: S$0.28].
No comments:
Post a Comment