Oil and Gas: 4Q09 results wrap

By Low Pei Han
Fri, 5 Mar 2010, 09:01:00 SGT

With the close of the 4Q09 results reporting season, we find that oil and gas companies under our coverage turned in a mixed bag of results. The rig builders posted record-breaking results with the execution of their order books while Ezra Holdings posted decent results with good contributions from EOC. ASL Marine and KS Energy posted softer sets of results with the difficult environment, while Swiber incurred a net loss in the last quarter. Despite the challenging environment, Yangzijiang performed well. In the past quarter, the amount of news flow from the oil and gas sector remained significant, which is unlikely to abate soon. We maintain our OVERWEIGHT rating on the sector as industry fundamentals remain intact. However, different parts of the oil and gas value chain experience different demand and supply dynamics, which should be kept in mind during stock picking. Our preferred picks are Sembcorp Marine [BUY, FV: S$4.58], Ezra Holdings [BUY, FV: S$2.54] and Keppel Corp [BUY, FV: S$9.93].

Results recap. With the close of the 4Q09 results reporting season, we find that oil and gas companies under our coverage turned in a mixed bag of results. Sembcorp Marine and Yangzijiang delivered better-than-expected results with the former surprising the market with its high margins. Keppel, Ezra and KS Energy posted core net profits that were in line with expectations, while ASL Marine and Swiber performed below expectations. We also look back at FY09 to see the trend in revenue and core operating profits for the industry as well as individual companies.

Disparity in performance. The disparity in companies’ performance, despite being in the same sector, highlights the importance of stock picking in today’s environment where the sharp rebound witnessed after March 09 is unlikely to happen again soon. The rig builders posted record-breaking results with execution of their order books while Ezra posted decent results with good contributions from EOC. ASL Marine and KS Energy posted softer results with the difficult environment, while Swiber incurred a net loss in the last quarter. Yangzijiang, however, continued to perform well with no order cancellations and respectable margins.

Noteworthy events. In the past quarter, the amount of news flow from the oil and gas sector remained significant, which is unlikely to abate soon. Sembcorp Marine announced it will build a new yard in Brazil, which greatly increases its chances of securing new orders from Petrobras given its greenfield yard can take on many new jobs when up, amongst other factors. Keppel secured a jack-up rig contract from Saudi Aramco including other new work, signaling that confidence is gradually returning to the industry. Swiber announced a series of new contract wins which portend well for the industry and the group. As for KS Energy, the group continued with its integration efforts by announcing the consolidation of Aqua-Terra and SSH with itself. Beyond our coverage, M&A activities include Falcon Energy’s purchase of Scomi Marine’s stake in CH Offshore, and the finalization of the acquisition of Swissco by C2O Holdings.

Maintain overweight. We maintain our OVERWEIGHT rating on the sector as industry fundamentals remain intact. However, different parts of the oil and gas value chain experience different demand and supply dynamics, which should be kept in mind during stock picking. The credit situation for newbuilds, be it rigs or ships, continues to improve. Our preferred picks are Sembcorp Marine [BUY, FV: S$4.58], Ezra Holdings [BUY, FV: S$2.54] and Keppel Corp [BUY, FV: S$9.93].

Disclaimer for Research Report

This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

Privileged/Confidential information may be contained in this message. If you are not the addressee indicated in this message (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this message that do not relate to the official business of my company shall not be understood as neither given nor endorsed by it.

For and on behalf of OCBC Investment Research Private Limited:

Carmen Lee
Head of Research

Co.Reg.no.:198301152E