KEPPEL CORPORATION LIMITED (SGX:BN4)
SEMBCORP INDUSTRIES LTD (SGX:U96)
SEMBCORP MARINE LTD (SGX:S51)
COMFORTDELGRO CORPORATION LTD (SGX:C52)
SINGAPORE AIRLINES LTD (SGX:C6L)
Singapore Strategy - Energy Correlation
- The recent attack on key oil assets in Saudi Arabia is significant in our view as it took out 5% of global oil production. We examine the correlation of Singaporean companies with oil prices.
- On a 1-year historical basis, China Aviation Oil (SGX:G92), Keppel Corp (SGX:BN4), Sembcorp Industries (SGX:U96), Falcon Energy (SGX:5FL) and Baker Technology (SGX:BTP) showed the highest correlation.
The 14 September attack on two key oil assets in Saudi Arabia
- More than a week has passed post the 14 September attack on two key oil assets in Saudi Arabia that curtailed around half of the country’s oil production capacity – equivalent to shutting down both Brazil’s and Kuwait’s oil production.
- In our view, the attack is a game-changer as it used inexpensive and undetectable drones that managed to knock out 5% of global oil production, if only temporarily. This feat cannot be underestimated and we expect a US$2-4/bbl risk premium on oil prices in the near to medium term.
- In our view, oil prices will continue to be buffeted by newsflow of when the Saudis will be able to get the lost production back up and running.
Impact on Asia.
- Reuters reported that as a result of damage to its facilities, Saudi Aramco has to delay oil shipments to Asian oil refiners and replace light crude with medium to heavy grades. Asian refiners import 70% of their crude oil requirements from Saudi Aramco and fortunately are complex enough to deal with the lower-quality oil.
- While there are no listed refiners here in Singapore, there are oil-related plays whose share prices show a reasonably high correlation with the Brent oil price.
KEY STOCKS MOST CORRELATED WITH BRENT OIL PRICE
- Key stocks most correlated with the Brent oil price on a 1-year basis are CHINA AVIATION OIL (SGX:G92), KEPPEL CORPORATION (SGX:BN4), SEMBCORP INDUSTRIES (SGX:U96), FALCON ENERGY GROUP (SGX:5FL) and BAKER TECHNOLOGY (SGX:BTP) (see below for full table).
- As expected, the REIT-heavy Straits Times Index (STI) has a very low correlation to Brent at 0.141 on a 1-year basis. However, if we look at a slightly longer timeframe of five years, the STI surprisingly comes out as the most correlated with an R of 0.657 while KEPPEL CORPORATION (SGX:BN4) again makes an appearance, as do SEMBCORP MARINE (SGX:S51), REX INTERNATIONAL (SGX:5WH) and KIMHENG OFFSHORE & MARINE (SGX:5G2).
WHO ISN’T CORRELATED?
- At the opposite end of the scale, the STI, VALLIANZ (SGX:WPC) and COMFORTDELGRO (SGX:C52) showed little to no correlation to movements in oil prices on a 1-year historical basis. Interestingly, ComfortDelgro’s share price had a meaningful negative correlation to oil prices on a 5-year basis despite only 7% of its revenue being attributable to fuel costs.
COMMENTS ON THE CORRELATIONS
- One would have expected exploration & production (E&P) companies to be most correlated to oil prices, given that their oil production would directly benefit from higher oil prices.
- E&P companies in our sample include INTERRA RESOURCES (SGX:5GI) and RH PETROGAS (SGX:T13), while KRISENERGY (SGX:SK3) is suspended although operationally its current oil production may benefit from higher oil prices.
- Offshore marine vessel owners and service providers as well as rig-building companies would only benefit if long-term oil prices increased, which may then lead to an increase in new rig or vessel orders.
CORRELATION BETWEEN BRENT OIL PRICE AND SGX-LISTED ENERGY STOCKS
| Company | 1-Year Correlation Coefficient |
2-Year Correlation Coefficient |
5-Year Correlation Coefficient |
Description |
|---|---|---|---|---|
| STI | 0.141 | 0.194 | 0.657 | Straits Times Index |
| CHINA AVIATION OIL (SGX:G92) | 0.883 | 0.394 | 0.274 | Jet fuel supply and trader into Chinese airports |
| KEPPEL CORPORATION (SGX:BN4) | 0.749 | 0.337 | 0.577 | Offshore marine, property, asset management |
| SEMBCORP INDUSTRIES (SGX:U96) | 0.735 | 0.249 | 0.240 | Water and gas utilities, renewables |
| FALCON ENERGY GROUP (SGX:5FL) | 0.721 | -0.149 | -0.235 | Owns offshore supply vessels, warehousing & logistics and general support activities |
| BAKER TECHNOLOGY (SGX:BTP) | 0.714 | 0.102 | -0.110 | Manufactures and provides specialized equipment for oil & gas sector |
| SEMBCORP MARINE (SGX:S51) | 0.712 | 0.416 | 0.380 | Rig and offshore vessel builder, conversions, ship repair & maintenance |
| INTERRA RESOURCES (SGX:5GI) | 0.647 | 0.076 | 0.119 | Oil & gas company with assets in Myanmar & Indonesia; 851bbl/day of production in 2Q19 |
| CH OFFSHORE (SGX:C13) | 0.617 | 0.042 | -0.341 | Owns 16 AHTS and one offshore supply vessel |
| REX INTERNATIONAL (SGX:5WH) | 0.568 | 0.156 | 0.299 | Has ‘proprietary technology’ to find oil, and owns non-producing assets in Oman |
| MERMAID MARITIME (SGX:DU4) | 0.562 | 0.185 | 0.188 | Provides subsea and drilling services |
| RH PETROGAS (SGX:T13) | 0.425 | 0.322 | 0.201 | Oil & gas company with assets in China, Indonesia & Malaysia; 4,080boe/day of production in 2018 |
| SINGAPORE AIRLINES (SGX:C6L) | 0.324 | 0.266 | -0.262 | Singapore’s national airline |
| KIMHENG OFFSHORE & MARINE (SGX:5G2) | 0.289 | 0.262 | 0.279 | Owns two shipyards in Singapore doing newbuilding and repair & maintenance |
| DYNA-MAC (SGX:NO4) | 0.220 | 0.023 | 0.172 | Engineering, fabrication and construction of offshore assets |
| VALLIANZ (SGX:WPC) | 0.114 | -0.008 | -0.063 | Owns 62 OSVs and operates in Middle East, Africa, and Asia Pacific |
| COMFORTDELGRO (SGX:C52) | 0.025 | 0.189 | -0.452 | Land transport company with over 42,000 vehicles in 7 countries |
Adrian LOH
UOB Kay Hian Research
|
Singapore Research Team
UOB Kay Hian
|
https://research.uobkayhian.com/
2019-09-25
SGX Stock
Analyst Report
7.610
SAME
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2.29
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2.29
1.220
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1.220
2.950
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2.950
9.500
SAME
9.500
