Since our Oil and Gas strategy report (“Always a vital resource”, 3 Dec 2012) highlighted our belief that the O&G sector would see good investor interest in early 2013, the FTSE Oil and Gas index has appreciated by 5.9% vs the STI’s 4.6% gain over the same period. Stocks in this sector, generally have higher betas, saw a strong start to the year with renewed optimism in the broader market. Under our sector coverage comprising 15 O&G stocks, Ezion has delivered the best performance since then with a 26% price appreciation. Investor interest recently has centred on the small-mid cap space, of which our preferred picks are Ezion Holdings [BUY, FV: S$2.05] and Nam Cheong Ltd [BUY, FV: S$0.30]. We also like the rigbuilders for their clear earnings visibility and favourable industry outlook: Keppel Corp [BUY, FV: S$12.49], Sembcorp Marine [BUY: FV: S$5.84]. Maintain OVERWEIGHT.
Strong start to the year
Since our Oil and Gas strategy report (“Always a vital resource”, 3 Dec 2012) highlighted our belief that the O&G sector would see good investor interest in early 2013, the FTSE Oil and Gas index has appreciated by 5.9% vs the STI’s 4.6% gain over the same period. Stocks in this sector, generally have higher betas, saw a strong start to the year with renewed optimism in the broader market.
How our picks fared so far
In the report, we highlighted Keppel Corporation, Sembcorp Marine, Ezion Holdings and Nam Cheong Ltd as our preferred picks for the sector. Under our sector coverage comprising 15 O&G stocks, Ezion has delivered the best performance since then with a 26% price appreciation. Nam Cheong also turned in a notable 10.4% gain, along with renewed interest in the small-mid caps. Keppel Corp saw a 4.6% rise, while Sembcorp Marine saw a 5.4% gain.
Macro events still a main driver; cautiousness in Feb?
The sector is still pretty much driven by macroeconomic events in the near term. Though Brent and WTI crude prices are expected to remain supportive of offshore capex, Mar has become the new Dec, and cautiousness may start to emerge in Feb as political brinkmanship in the US intensifies before the Mar fiscal cliff deadline. We are also expecting in-line results for most of our companies in the sector when they report in Feb.
Reiterate OVERWEIGHT
We note that the early part of last year also saw relatively good performance in the O&G sector, and this is likely to be seen in early 2013 as we believe that upcoming data supports a thesis for improving conditions for equities. For the longer term, we maintain our OVERWEIGHT rating on the sector and reiterate our picks: Keppel Corporation [BUY, FV: S$12.49], Sembcorp Marine [BUY, FV: S$5.84], Ezion Holdings [BUY, FV: S$2.05], Nam Cheong Ltd [BUY, FV: S$0.30].
Since our Oil and Gas strategy report (“Always a vital resource”, 3 Dec 2012) highlighted our belief that the O&G sector would see good investor interest in early 2013, the FTSE Oil and Gas index has appreciated by 5.9% vs the STI’s 4.6% gain over the same period. Stocks in this sector, generally have higher betas, saw a strong start to the year with renewed optimism in the broader market.
How our picks fared so far
In the report, we highlighted Keppel Corporation, Sembcorp Marine, Ezion Holdings and Nam Cheong Ltd as our preferred picks for the sector. Under our sector coverage comprising 15 O&G stocks, Ezion has delivered the best performance since then with a 26% price appreciation. Nam Cheong also turned in a notable 10.4% gain, along with renewed interest in the small-mid caps. Keppel Corp saw a 4.6% rise, while Sembcorp Marine saw a 5.4% gain.
Macro events still a main driver; cautiousness in Feb?
The sector is still pretty much driven by macroeconomic events in the near term. Though Brent and WTI crude prices are expected to remain supportive of offshore capex, Mar has become the new Dec, and cautiousness may start to emerge in Feb as political brinkmanship in the US intensifies before the Mar fiscal cliff deadline. We are also expecting in-line results for most of our companies in the sector when they report in Feb.
Reiterate OVERWEIGHT
We note that the early part of last year also saw relatively good performance in the O&G sector, and this is likely to be seen in early 2013 as we believe that upcoming data supports a thesis for improving conditions for equities. For the longer term, we maintain our OVERWEIGHT rating on the sector and reiterate our picks: Keppel Corporation [BUY, FV: S$12.49], Sembcorp Marine [BUY, FV: S$5.84], Ezion Holdings [BUY, FV: S$2.05], Nam Cheong Ltd [BUY, FV: S$0.30].
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