Singapore Small-Mid Cap Stock Strategy - UOB Kay Hian 2021-06-15: Beneficiaries Of Higher Oil Prices

Singapore Small-Mid Cap Stock Strategy - UOB Kay Hian Research | SGinvestors.io MERMAID MARITIME PUBLIC CO LTD (SGX:DU4) CSE GLOBAL LTD (SGX:544) CHINA AVIATION OIL(S) CORP LTD (SGX:G92) REX INTERNATIONAL HOLDING LTD (SGX:5WH) AUSGROUP LIMITED (SGX:5GJ) MARCO POLO MARINE LTD. (SGX:5LY) ANAN INTERNATIONAL LIMITED (SGX:Y35) RH PETROGAS LIMITED (SGX:T13) KIM HENG LTD. (SGX:5G2) INTERRA RESOURCES LIMITED (SGX:5GI)

Singapore Small-Mid Cap Stock Strategy - Beneficiaries Of Higher Oil Prices

  • The recent increase in crude oil prices, due to declining global oil inventories and better-than-expected global oil demand with the re-opening of economies after the COVID-19 lockdowns, has triggered renewed interest in the oil & gas sector. OPEC, together with Russia, has also helped by agreeing to a slow unwinding of supply curbs.
  • The immediate beneficiaries in Singapore are upstream oil producers such as RH PetroGas (SGX:T13) and Rex International (SGX:5WH), in our view.



Rising crude oil prices have triggered renewed interest in the O&G sector.

  • We highlight SGX-listed stocks which saw a jump in interest in tandem with the higher oil prices, which in our view was triggered by:
    1. the weaker US$;
    2. slower-than-expected resumption of global oil production;
    3. drawdown of crude inventories; and
    4. expectations for higher energy demand as economies recover, underpinned by successful COVID-19 vaccine deployment.


The immediate beneficiaries are RH Petrogas (RHP) and Rex International

  • The immediate beneficiaries are RH PetroGas (SGX:T13) and Rex International (SGX:5WH) as they are upstream oil producers. RH PetroGas delivered record earnings of US$3.4m (+466% y-o-y) in 1Q21. This earnings trajectory appears sustainable, as the strong 1Q21 was driven by:
    1. a strong recovery in oil prices;
    2. reduced production costs, implemented since mid-20 due to COVID-19 (US$27.5/bbl in 2020 vs US$31.5/bbl in 2019); and
    3. renewal of a 20-year production sharing contract (PSC) for one of its oil fields in Indonesia.
  • RH PetroGas trades at 7x 2021F P/E, annualising 1Q21 earnings per share of US$0.0046/share (S$0.62cts/share). Sembcorp Marine (SGX:S51), Keppel Corp (SGX:BN4), CSE Global and other O&M players could benefit from positive market sentiment but much depends on whether oil prices are on a structural upcycle and not on spot oil prices.


Green shoots are emerging.

  • Our Mar 21 oil & gas sector report indicated that the worst may be over for the offshore marine industry, supported by the improving trends in rig utilisation and day rates. Oil & gas project commitments for 2021-25 are forecast to increase 66% vs the prior five-year period. In the past six months, the Brent forward oil price for delivery in end-25 has risen 23% from US$48/bbl to US$59/bbl and is thus more supportive of oil industry capex.


Oil prices are encouraging.

  • The forward oil and gas price view plays a major role as to whether projects are green-lighted or not. With the Brent oil price having traded at US$55- 80/bbl in the past three years, and if it continues to average at a steady range of US$55- 60/bbl, most oil projects would generate decent IRR in our view.


Steady growth in consumption support elevated crude prices.

  • According to the US Energy Information Administration (EIA), world energy consumption for 2021 is estimated to rise 6.1%, outpacing expected global production of 2.8% and supporting the 56.4% increase in the forecasted Brent crude price.
  • For 2022, consumption is expected to grow 3.5% y-o-y to 101.32mmbpd, compared with production of 101.82mmbpd (+5.1% y-o-y), as producers are expected to end the global oil inventory draws that have occurred for much of 2020 and leading to relatively balanced global oil markets in 2H21.


RH PetroGas (SGX:T13)

  • Business. Despite volatility in oil prices, RH PetroGas remained profitable in the past three of four years (except in 2020 due to COVID-19), with a portfolio consisting of two upstream assets located in Indonesia. RH PetroGas’s assets include Kepala Burung (Basin PSC) and Salawati Kepala Burung (Island PSC) which have a relatively stable net production of about 4,000 barrels of oil equivalent per day since 2016. In Jul 18, RH PetroGas was awarded new 20-year PSCs for both assets that expired in 2020. RH PetroGas’s effective working interest has increased from 54% to 58%
  • Recent updates: In 1Q21, RH PetroGas reported record earnings of US$3.4m (+466% y-o-y). This earnings trajectory appears sustainable into the future, as the strong 1Q21 was driven by:
    1. a strong recovery in oil price;
    2. reduced production cost, implemented since mid-20 due to COVID-19 (US$27.5/bbl in 2020 vs US$31.5/bbl in 2019); and
    3. renewal of 20-years new PSCs of oilfields in Indonesia which raises RH PetroGas’s stake.
  • Valuation. RH PetroGas trades at 7x 2021F P/E, annualising 1Q21 earnings per share of US$0.46cts/share (S$0.62cts/share).
  • See RH PetroGas Share Price; RH PetroGas Target Price; RH PetroGas Analyst Reports; RH PetroGas Dividend History; RH PetroGas Announcements; RH PetroGas Latest News.


Rex International (SGX:5WH)



Interra Resources (SGX:5GI)



AnAn International (SGX:Y35)



AusGroup (SGX:5GJ)

  • Business. EPC provider supporting O&G industry; also provides fuel & marine logistics through its port facility.
  • Recent updates: AusGroup's 9MFYJun21 turned around to a net profit of A$1.1m (9MFY20: A$2.4m loss) despite a 38% y-o-y drop in revenue to A$139m due to effects of the impact of COVID-19 as a result of the postponement of client determined non-critical projects. Gross profitability was stable y-o-y at 9.8% from improved operating efficiency, while the bottom line was bolstered by government subsidies.
  • Recently signed a significant long-term maintenance master contract with Chevron Australia, which would provide a steady income stream to the group.
  • Valuation. AusGroup currently trades at 2.0x 2020 P/B.
  • See AusGroup Share Price; AusGroup Target Price; AusGroup Analyst Reports; AusGroup Dividend History; AusGroup Announcements; AusGroup Latest News.


China Aviation Oil (SGX:G92)



CSE Global (SGX:544)

  • Business. Global system integrator for clients globally in the energy, chemical/petrochemical, utilities, water and waste water, healthcare and public sectors.
  • Recent updates: CSE Global’s 1Q21 EBITDA of S$10m (-22% y-o-y) was slightly below expectation, forming 21% of our full-year estimates. The miss was due to lower revenue from the energy segment that was affected by severe winter weather in the Americas, which we expect to reverse in the coming quarters from delayed revenue recognition. There was a strong showing from the infrastructure segment which reported a 21% y-o-y growth in revenue and 50% y-o-y growth in order intake. Maintain BUY.
  • Valuation. Our target price of S$0.68 for CSE Global is pegged to 13x 2022F P/E, +0.5 standard deviation above its 5-year forward mean P/E of 11.4x. Our target price implies a dividend yield of 4.4%.
  • See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.


Kim Heng (SGX:5G2)

  • Business. Kim Heng is an Integrated O&M services provider with customers from over 25 countries in the regions of Southeast Asia, Australasia, Middle East and Europe.
  • Recent updates: Reported 2020 net loss of S$7.2m (2019: S$6.9m) on the back of a 35% drop y-o-y in revenue to S$37.6m. This was due to reduction in sales for offshore rig services and supply chain management segments due to the delay in projects as a result of restrictions imposed by the COVID-19 pandemic.
  • Management highlighted continued uncertainties and challenges in the offshore and shipping industries, but are seeing more opportunities, particularly in the offshore windfarm renewable energy segment.
  • Valuation. Kim Heng currently trades at 0.9x 2020 P/B.
  • See Kim Heng Share Price; Kim Heng Target Price; Kim Heng Analyst Reports; Kim Heng Dividend History; Kim Heng Announcements; Kim Heng Latest News.

MarcoPolo Marine (SGX:5LY)



Mermaid Maritime (SGX:DU4)






Singapore Research Team UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-06-15
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
BUY MAINTAIN BUY 0.680 SAME 0.680
NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000
BUY MAINTAIN BUY 0.300 SAME 0.300
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......