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:
- the weaker US$;
- slower-than-expected resumption of global oil production;
- drawdown of crude inventories; and
- 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:
- a strong recovery in oil prices;
- 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
- 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:
- a strong recovery in oil price;
- 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
- 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)
- Business: Rex International has exploration and production activities with a focus in Oman and Norway.
- Recent updates: For 2020, Rex International recorded revenue of US$46.7m (2019: US$0.1m), mainly from production in the Oman concession from Apr 20. However, Rex International was still loss-making last year (US$14.2m loss), largely as a result of high start-up costs for initial production.
- Rex International expects to produce more oil from the Oman field in 2021. Management cited that production facilities have been upgraded to support increased volume, with high initial start-up costs behind them.
- Valuation. Rex International currently trades at 1.4x 2020 P/B.
- See Rex International Share Price; Rex International Target Price; Rex International Analyst Reports; Rex International Dividend History; Rex International Announcements; Rex International Latest News. Rex International Blog Articles
Interra Resources (SGX:5GI)
- Business. Interra Resources has a portfolio of production, development and exploration assets comprising five contract areas in Australia, Indonesia and Myanmar.
- Recent updates: Interra Resources's 2020 revenue of US$10.8m was 31% lower y-o-y due to the lower weighted average transacted oil price of US$41.73/bbl (-34% y-o-y), mitigated partially by higher sales of shareable oil by 4% y-o-y to 327,708 barrels (2019: 314,467 barrels). This resulted in a wider net loss of US$1.2m in 2020 (2019: US$0.5m loss).
- As at Feb 21, Interra Resources suspended field operations at the Chauk and Yenanyaung fields in Myanmar due to the ongoing coup in the country.
- Valuation. Interra Resources is currently valued at 0.6x 2020 P/B.
- See Interra Resources Share Price; Interra Resources Target Price; Interra Resources Analyst Reports; Interra Resources Dividend History; Interra Resources Announcements; Interra Resources Latest News.
AnAn International (SGX:Y35)
- Business. Petroleum and petrochemical products trader.
- Recent updates: AnAn International reported 1Q21 net loss of US$0.6m (1Q20: US$0.7m loss) mainly due to increased staff costs. This was despite stable y-o-y gross margin of 3.8%, while revenue inched 2% y-o-y higher to US$375.8m from the strengthening of € against the reported currency in US$.
- AnAn International’s main revenue is derived from Dyneff Group in France and Spain currently, and is continuing to seek organic growth and diversification into other natural energy sources.
- Valuation. AnAn International currently trading at 1.4x 2020 P/B.
- See AnAn International Share Price; AnAn International Target Price; AnAn International Analyst Reports; AnAn International Dividend History; AnAn International Announcements; AnAn International Latest News.
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)
- Business. Main business includes jet fuel procurement, international oil trading and oil-related investment. Has close to 100% market share of the procurement of imported jet fuel for the civil aviation industry in China.
- Recent updates: China Aviation Oil's 2020 net profit almost halved to US$56.2m (-43.7% y-o-y), alongside the 48.3% drop in revenue to US$10.52b as a result of lower oil price and trading volumes arising from the negative effects of the COVID-19 pandemic.
- The COVID-19 pandemic has resulted in uncertainties for global air traffic, translating to challenging conditions for China Aviation Oil. Management highlighted it will stay the course to build on its jet fuel supply and trading network complemented with trading in other oil products.
- Valuation. China Aviation Oil currently trades at 10.1x 2021F P/E and 0.8x 2021F P/B.
- See China Aviation Oil Share Price; China Aviation Oil Target Price; China Aviation Oil Analyst Reports; China Aviation Oil Dividend History; China Aviation Oil Announcements; China Aviation Oil Latest News.
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)
- Business. MarcoPolo Marine is an integrated marine logistics group that provides ship chartering of OSVs in regional waters, as well as ship building and maintenance at its shipyard in Batam, Indonesia.
- Recent updates: MarcoPolo Marine swung into 1HFYSep21 net profit of S$5.9m (1HFY20: S$0.7m loss). Revenue improved 13% y-o-y to S$18.6m due to more ship repair jobs and commencement of new shipbuilding projects. 1HFY21 EBITDA more than tripled to S$3.9m.
- Management is seeing positive signs emerging recently, potentially indicating that the sector downturn may be bottoming-out. Particularly, MarcoPolo Marine will continue to step up marketing efforts to improve its performance and explore additional revenue sources by venturing beyond Southeast Asia, in particular, into the offshore windfarm renewable energy segment.
- Valuation. MarcoPolo Marine trades at 0.9x 2020 P/B.
- See MarcoPolo Marine Share Price; MarcoPolo Marine Target Price; MarcoPolo Marine Analyst Reports; MarcoPolo Marine Dividend History; MarcoPolo Marine Announcements; MarcoPolo Marine Latest News.
Mermaid Maritime (SGX:DU4)
- Business. Mermaid Maritime provides drilling and sub-sea engineering services in Southeast Asia.
- Recent updates: Mermaid Maritime's 1Q21 net loss narrowed to US$4.1m (1Q20: US$10.1m loss) despite lower revenue of US$18.7m (-15.7% y-o-y) from reduced utilisation of chartered subsea vessels impacted by COVID-19-related restrictions. The improvement in bottom line was due to cost saving programmes.
- Management is seeing a definite uptick in activity, soaking up of excess tonnage. The intermediate outlook remains positive as construction engagements begin to mobilise after a year of relative inaction.
- Valuation. Mermaid Maritime trades at 0.4x 2020 P/B.
- See Mermaid Maritime Share Price; Mermaid Maritime Target Price; Mermaid Maritime Analyst Reports; Mermaid Maritime Dividend History; Mermaid Maritime Announcements; Mermaid Maritime Latest News.
Singapore Research Team
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-06-15
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