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).
- Our target price is based on SOTP-methodology. Keppel Corp's share price performance in the next few months will hinge upon its ability to deliver a reasonable price for its O&M segment. We note that after nearly S$1b in impairments, the book value of this segment as at end-1H20 was S$1.4b (S$0.77/share).
- See Keppel Corp Share Price; Keppel Corp Target Price; Keppel Corp Analyst Reports; Keppel Corp Dividend History; Keppel Corp Announcements; Keppel Corp Latest News.
Sembcorp Industries (SGX:U96) (BUY/ Target Price: S$1.66).
- We believe our target P/B of 0.8x is reasonable as it reflects a better comparability between Sembcorp Industries and its regional utilities peers without the offshore marine overhang.
- See Sembcorp Share Price; Sembcorp Target Price; Sembcorp Analyst Reports; Sembcorp Dividend History; Sembcorp Announcements; Sembcorp Latest News.
Sembcorp Marine (SGX:S51) (SELL/ Target Price: S$0.154).
- Our target price which is under review implies 0.77x P/B, or 1SD below its 2015-19 average of 1.04x. We note that its past-5-year trough P/B of 0.64x equates to a share price of S$0.128.
- See Sembcorp Marine Share Price; Sembcorp Marine Target Price; Sembcorp Marine Analyst Reports; Sembcorp Marine Dividend History; Sembcorp Marine Announcements; Sembcorp Marine Latest News.
Yangzijiang Shipbuilding (SGX:BS6) (BUY/ Target Price: S$1.17).
- Our target price is based on 0.68x P/B, or a 10% discount to its past-5-year average P/B.
- See Yangzijiang Share Price; Yangzijiang Target Price; Yangzijiang Analyst Reports; Yangzijiang Dividend History; Yangzijiang Announcements; Yangzijiang Latest News.
Offshore & Marine stocks share price performance ytd.
- The only stock which has seen a positive share price performance ytd has been Sembcorp Industries which is up 26% while the rest have declined. Over the past three months, Sembcorp Industries has also been the best performer, up 62% as the market appears to have looked favourably upon its demerger with Sembcorp Marine.
- See
- Going forward, we expect the stock to continue to do well as we expect the company’s valuation metrics to re-rate towards its regional utilities peers’.
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
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https://research.uobkayhian.com/
2020-10-27
SGX Stock
Analyst Report
6.300
SAME
6.300
1.660
SAME
1.660
0.154
SAME
0.290
1.170
SAME
1.170
