Thursday 2 July 2015

Singapore Offshore & Marine

UOBKayhian on 2 Jul 2015

We set our Brent oil price estimates for 2015 and 2016 at US$61/bbl and US$72/bbl respectively. We change our house estimates for average Brent crude oil price (Brent) to US$61/bbl (from US$65/bbl) for 2015 and to US$72/bbl (from US$70/bbl) for 2016. Our estimates are derived from the mean forecast of 38 agencies, comprising 37 international brokers/banks and one US oil agency. We have only included forecasts published in 2015 as estimates prior to 2015 do not reflect the current environment and would have skewed our average. Our estimates will be updated at the end of each month going forward and be raised/lowered accordingly if the deviation exceeds 5%. Oil prices appear to have found some stability with Brent at above US$50/bbl. Oil price up 12% ytd on product demand. Brent has risen 12% ytd, touching a low of US$46.59/bbl in Jan 15 before rebounding to close at US$63.59/bbl on 30 June. According to the International Energy Agency (IEA), demand was due to three temporary factors - economic growth, colder-than-year-earlier winter conditions in Europe and lower prices. Oil analysts shared similar sentiments, commenting that the “surging demand” seen was not what it was. They highlighted China’s crude imports for May, which fell 1.9 million barrels per day (mb/d) from its April record-high of 7.4mb/d, was potentially opportunistic stockpiling. Maintain MARKET WEIGHT. We retain our stock recommendations and maintain MARKET WEIGHT on the sector. The global O&G industry faces poor earnings visibility as capex and operating costs are being cut. An austerity drive now permeates the entire industry − among oil companies, service providers and shipyards. 4Q14 and 1Q15 saw a fall off the cliff. While activities are returning, oilfield services companies are expected to post poor earnings performance for 2Q15. A meaningful recovery might be seen only in 2H15. In the meantime, stock prices of mid- and small-cap oil service stocks have fallen close to cyclical trough valuations of 0.5x. Our top stock picks in the Singapore offshore & marine sector remain Sembcorp Industries (SCI), Ezion and Triyards

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