Tuesday, 1 September 2015

Offshore & Marine

UOBKayhian on 1 Sep 2015

We lower our oil price benchmark from US$70/bbl to US$60/bbl, as there have been several downgrades in consensus forecasts in August. We cut our stock target prices by 10-25%. We cut our stock target prices by 10-25%, as we lower our Brent crude oil price benchmark from US$70/bbl to US$60/bbl. Our Brent crude oil price estimates for 2015 and 2016 are based on the forecasts of 38 organisations. There were some downward revisions by consensus in August. Following an update of the latest consensus forecasts, the average Brent oil price forecast for 2016 is US$67/bbl, down from US$72/bbl as of end July. Thus, we lower the oil price benchmark for our stock target prices from US$70/bbl to US$60/bbl. No change in stock recommendations. Maintain MARKET WEIGHT. Despite our steep target price cuts, there is no change in our stock recommendations. With the current share prices at near cyclical trough valuations, many stocks are deep in value. The global O&G industry still 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 slowing returning, oilfield services companies are expected to post poor earnings performance in 2015. A meaningful recovery might be seen only in 2016. 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 (O&M) sector remain Sembcorp Industries (SCI), Ezion and Triyards. We recently upgraded Ezra to BUY following its announcement that Chiyoda – a 33%- owned associate of Mitsubishi Corp - is taking a 50% stake in subsea unit EMAS AMC.

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