S’pore oil & gas firms optimistic about project roll-outs

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Oil & Gas sector
Maintain overweight:
We visited oil & gas companies in Singapore last week, which included Keppel Corp, Sembcorp Marine Ltd, Ezion Holdings Ltd, Ezra Holdings Ltd and PACC Offshore Services Holdings Ltd (POSH).

Operators in Singapore remain largely optimistic about the global roll-out of projects.

But fabrication yards there appear to be less concerned about the rise of competition from China given delivery delays and quality issues encountered by some operators. In some notable cases, newly-built rigs in China had to be upgraded or modified in Singapore before being deployed elsewhere.

We note that the order book for fabrication yards Keppel Offshore & Marine Ltd and Sembcorp Marine Ltd remain near their peak levels of S$14.1 billion (RM35.9 billion) and S$12.7 billion respectively, but the growth in new orders appear to be decelerating. For Keppel, its new order accretion has slowed from S$10 billion in financial year 2012 (FY12) and S$7 billion in FY13 to only S$3.2 billion in 1HFY14.

Likewise, for Sembcorp Marine, its new order flows had slowed down from S$11 billion in FY12 and S$4.2 billion in FY13 to only S$2.5 billion in 1HFY14. Notwithstanding the slower orders, both yard operators remain optimistic about prospective order flows from the Gulf of Mexico, the Middle East, Brazil, West Africa and the Southeast Asian region.

In Malaysia, multiple enhanced oil recovery projects in the pipeline involving central processing platforms for the Kasawari, Sepat, and Guntong fields are up for grabs. While packages for Refinery and Petrochemical Integrated Development project in Johor has been recently awarded to multiple foreign contractors, there is still a likelihood that some of the smaller jobs may be awarded to local yards.

We maintain our Overweight view on the sector with “Buy” calls for SapuraKencana Petroleum Bhd, Bumi Armada Bhd, Petronas Gas Bhd and Alam Maritim Resources Sdn Bhd. We have a “Hold” recommendation for Dialog Group Bhd and “Sell” for Malaysia Marine and Heavy Engineering Holdings Bhd due to poor earnings delivery. — AmResearch, Sept 10

This article first appeared in The Edge Financial Daily, on September 11, 2014.