UOB Kay Hian Malaysia Research recently downgraded the oil and gas sector from Overweight to Market Weight, given that stock prices have recovered by an average of 30%-40% from their recent lows.
“Nonetheless, we still see pockets of opportunities and advocate a bottom-up approach in stock selection.
“Top picks are SapuraKencana Petroleum for large caps and Perisai and Barakah Offshore Petroleum for small/mid caps,” it said on Wednesday.
UOB Kay Hian Research recently hosted a luncheon with Professor Dr Stavros Tsolakis, a MPA Visiting Professor of Maritime Economics at Singapore Management University (SMU) and attended the Asia-Pacific O&G Conference in Singapore, which gathered international oil companies such as Chevron, ConocoPhillips and Shell.
“We conclude that their views are very much aligned with ours – crude and brent oil prices should rebound in 2H15 towards US$60-US$70/bbl but would remain below US$80/bbl for the time being,” it said.
The research house said key catalysts that would support higher oil prices include the potential decrease in shale oil exploration and production.
“We are currently seeing lower rigs being chartered in the US as the Baker Hughes rig count has dipped 34.4% from a high of 1,609 in Octoober 2014 to 1,056 in February 2015,” it said.
For 2015, UOB Kay Hian Research reiterated its view that many projects would be deferred as many of them do not make sense when oil prices are at US$50/bbl.
“Even if a project makes sense (likely onshore and shallow water oilfields), the project buffer is low making it difficult for oil companies to invest.
“With this in mind, we understand that most oil companies will review their cost structure and will try and squeeze their service providers. This is healthy in our view as escalating costs over the last three to four years (due to high oil prices) cannot be sustained for a long period of time,” it said.
UOB Kay Hian Research pointed out since stock prices have recovered by an average of 30%-40% from their recent lows, it recently downgraded its tactical Overweight rating on the sector to Market Weight.
“Nonetheless, we still see ample investment opportunities and advocate a bottom-up strategy that favours companies with: a) a resilient business model, b) a sustainable orderbook that can provide two to three years of earnings visibility, c) good margins to cushion the potential industry downturn, and d) less geared balance sheets,” it said.
The research house pointed out that within the four sub-sectors in its O&G universe, it remains Overweight on offshore contractors as most of them are backed by a decent orderbook, which will sustain near-term earnings visibility.
“We are Market Weight on offshore asset owners (we prefer less-geared companies) and shipping (we do not think the rally in shipping charter rates are sustainable).
“We also remain Underweight on the heavy engineering sector, especially fabricators.
“Key themes that support our investment thesis include: a) sector earnings will still grow 10.7% on-year in 2015 and 11.8% on-year in 2016, b) Petronas would still invest to beef up domestic production, c) projects that have received final investment decisions (FID) will continue, and d) the development of RAPID and its associated facilities costing US$27bil in total to remain intact,” it said.(thestar)
“Top picks are SapuraKencana Petroleum for large caps and Perisai and Barakah Offshore Petroleum for small/mid caps,” it said on Wednesday.
UOB Kay Hian Research recently hosted a luncheon with Professor Dr Stavros Tsolakis, a MPA Visiting Professor of Maritime Economics at Singapore Management University (SMU) and attended the Asia-Pacific O&G Conference in Singapore, which gathered international oil companies such as Chevron, ConocoPhillips and Shell.
“We conclude that their views are very much aligned with ours – crude and brent oil prices should rebound in 2H15 towards US$60-US$70/bbl but would remain below US$80/bbl for the time being,” it said.
The research house said key catalysts that would support higher oil prices include the potential decrease in shale oil exploration and production.
“We are currently seeing lower rigs being chartered in the US as the Baker Hughes rig count has dipped 34.4% from a high of 1,609 in Octoober 2014 to 1,056 in February 2015,” it said.
For 2015, UOB Kay Hian Research reiterated its view that many projects would be deferred as many of them do not make sense when oil prices are at US$50/bbl.
“Even if a project makes sense (likely onshore and shallow water oilfields), the project buffer is low making it difficult for oil companies to invest.
“With this in mind, we understand that most oil companies will review their cost structure and will try and squeeze their service providers. This is healthy in our view as escalating costs over the last three to four years (due to high oil prices) cannot be sustained for a long period of time,” it said.
UOB Kay Hian Research pointed out since stock prices have recovered by an average of 30%-40% from their recent lows, it recently downgraded its tactical Overweight rating on the sector to Market Weight.
“Nonetheless, we still see ample investment opportunities and advocate a bottom-up strategy that favours companies with: a) a resilient business model, b) a sustainable orderbook that can provide two to three years of earnings visibility, c) good margins to cushion the potential industry downturn, and d) less geared balance sheets,” it said.
The research house pointed out that within the four sub-sectors in its O&G universe, it remains Overweight on offshore contractors as most of them are backed by a decent orderbook, which will sustain near-term earnings visibility.
“We are Market Weight on offshore asset owners (we prefer less-geared companies) and shipping (we do not think the rally in shipping charter rates are sustainable).
“We also remain Underweight on the heavy engineering sector, especially fabricators.
“Key themes that support our investment thesis include: a) sector earnings will still grow 10.7% on-year in 2015 and 11.8% on-year in 2016, b) Petronas would still invest to beef up domestic production, c) projects that have received final investment decisions (FID) will continue, and d) the development of RAPID and its associated facilities costing US$27bil in total to remain intact,” it said.(thestar)
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