Offshore & Marine Stocks 3Q20 Results Preview - UOB Kay Hian 2020-10-27: Not Expecting Anything Eye-Catching

Singapore Offshore & Marine Stocks - UOB Kay Hian | SGinvestors.io KEPPEL CORPORATION LIMITED (SGX:BN4) SEMBCORP INDUSTRIES LTD (SGX:U96) SEMBCORP MARINE LTD (SGX:S51) YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)

Offshore & Marine Stocks 3Q20 Results Preview - Not Expecting Anything Eye-Catching

  • We do not expect compelling data points to come out from the upcoming results season for the Singapore industrials space.
  • For companies with rig-building exposure (Keppel Corporation and Sembcorp Marine), the industry remains in the doldrums as we expect market recovery to be at least 1-2 years away while better prospects appear around the corner for Sembcorp Industries and Yangzijiang Shipbuilding in our view.
  • Maintain MARKET WEIGHT.



Offshore & Marine Results Season Preview


Only Yangzijiang Shipbuilding is reporting 3Q20 results.

  • In the Singapore offshore & marine (O&M) space, Yangzijiang Shipbuilding will be the only company reporting its 3Q20 unaudited results. We expect 3Q20 revenue and net profit to be in the range at Rmb5.7b-5.8b and Rmb650m-660m respectively. The company has had a decent run-rate of new order wins since China came out of the COVID-19 lockdown, and we continue to expect positive newsflow heading into the end of the year.

Keppel will only report a 3Q20 business update and revenue -

  • which we expect at S$1.4-1.5b (2020F: S$6.14b). Investor interest will centre around the fate of its offshore & marine (O&M) business unit, which Keppel Corporation has said will either undergo a strategic merger or be disposed of. Commentary regarding its China property business will be important to gauge the sequential recovery post-COVID-19.

Looking for better sequential guidance for Sembcorp Industries

  • Looking for better sequential guidance for Sembcorp Industries, given that some of the economies that it has a presence in are on the road to recovery post-COVID-19. We however, expect Sembcorp Marine’s business updates to retain a bearish tone given the lack of new order wins this year. At present, both Sembcorp Marine and Sembcorp Industries have not committed to releasing any business updates yet.


Industry view: Neutral to bearish.

  • For the O&M sector, industry headwinds persist as day rates and utilisation rates for rigs have deteriorated further since our last update in August; thus, chances of a recovery in the O&M sector in the near to medium term remain low, in our view.
  • In our base-case scenario, the industry outlook remains challenging and new order flow may only re-surface in 1H21 at the earliest. This reinforces our view that an upcycle is more than two years away.

Keppel Corp (SGX:BN4) (BUY/ Target Price: S$6.30).


Sembcorp Industries (SGX:U96) (BUY/ Target Price: S$1.66).


Sembcorp Marine (SGX:S51) (SELL/ Target Price: S$0.154).


Yangzijiang Shipbuilding (SGX:BS6) (BUY/ Target Price: S$1.17).



Offshore & Marine stocks share price performance ytd.



Oil and gas demand has collapsed in 2020.

  • The US Energy Information Administration (EIA) expects global oil demand to contract by 8.6mmbpd in 2020, from around 100mmbpd pre-crisis. Going into the Northern Hemisphere winter, and with an apparent second wave of infections having started in various countries, oil demand may not recover if lockdowns remain in place, or are reimposed. Thus, the EIA’s forecast of a rebound in oil demand of 6.3mmbpd in 2021 may likely have a high chance of being downgraded as we head into 1Q- 2Q21.

Nothing spared from the downdraft this year.

  • With the exception of mid-water semi-submersibles (semi-subs), utilisation levels for other types of assets have declined by an average of 6% ytd. On the day-rate front, the experience has been similarly negative with both mid-water semi-subs and jack-ups rates declining by an aggregate of 9% ytd; only drill ships witnessed a 9% increase in day-rates since the start of 2020.
  • In recent weeks, the newsflow for jack-ups has remained bearish with Saudi Aramco suspending one of its rigs for 12 months while Kuwait Oil has delayed the start date of one of its jack-ups into 1Q21 from its original start date of mid-20.


No signs of thawing for cold-stacked rigs.

  • Globally, there are 302 rigs that are inactive at present with 115 or 38% of these rigs being cold-stacked. Although there are fewer cold-stacked rigs in Asia, the fact that three in five rigs are not working indicates an industry that is in a very parlous state at present.
  • In our view, it will take very bullish market conditions to reactivate the cold-stacked rigs given the time and cost required to bring them back up to fully operational standards.





Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-10-27
SGX Stock Analyst Report BUY MAINTAIN BUY 6.300 SAME 6.300
BUY MAINTAIN BUY 1.660 SAME 1.660
SELL MAINTAIN SELL 0.154 SAME 0.290
BUY MAINTAIN BUY 1.170 SAME 1.170



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