YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)
SEMBCORP MARINE LTD (SGX:S51)
SEMBCORP INDUSTRIES LTD (SGX:U96)
YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)
Singapore Offshore & Marine Stocks - Onwards And Upwards
- The rig market appears to have turned a corner in 2021 with oil prices exceeding US$80/bbl – this has resulted in stronger rig utilisation rates and a firming of rig dayrates vs 2020. The higher offshore activity expected in 2022 and 2023 underpins our positive view on the sector, especially given that meaningful rig supply was removed globally.
- We retain our OVERWEIGHT view on the sector, and our top picks remain Yangzijiang Shipbuilding, Keppel Corporation and Sembcorp Marine.
Offshore utilisation now exceeding pre-COVID-19 highs.
- Competitive utilisation for offshore rigs rose strongly in 2021 and now exceed pre-COVID-19 levels. With the higher utilisation numbers, we believe that dayrate numbers should follow and incentivise rig owners to place new orders. Already we have seen firmer rig dayrates on a y-o-y basis.
- We also note that particular regions like Brazil saw utilisation rates exceed 90% in 2021.
Global offshore activity expected to pick up in 2022 and 2023.
- Looking at future projects, the demand for production assets appears to have meaningful upside in the next few years which could have positive ramifications for both Keppel Corporation and Sembcorp Marine.
- According to Rystad Energy, offshore investments in 2022 are set to increase by 7% y-o-y from US$145b to US$155b (see chart on the right). In addition, we highlight that the US$150b of greenfield projects sanctioned in 2021 (2020: US$80b) will likely be repeated in 2022, thus underlining the positive outlook for the offshore marine sector in the short to medium term.
Supply destruction continues.
- Comparing Jan 22 data vs Jan 21, we note that the global offshore rig count fell 7% y-o-y to 716 rigs. According to industry data, 42 rigs were sold for scrap or conversion, with semi-subs registering the largest supply destruction in percentage terms, down 12% y-o-y to 104 rigs. In our view, this is positive for the industry as the extraction of excess supply should allow utilisation and dayrates to firm up going forward.
Maintain sector view at OVERWEIGHT.
- Should activity in the oil & gas industry strengthen in 2022 and 2023 (thus lead to a revival in the offshore marine industry), we could see a cyclical upturn start in the near term. This assumes that variants of COVID-19 are less lethal, and that governments are able to view the virus as endemic.
- Our top picks in the sector are:
- Yangzijiang Shipbuilding which remains inexpensive at 2022F P/B of 0.6x and will see margin expansion in the next few quarters; and
- Keppel Corporation due to its undemanding valuations and potential positive newsflow regarding the merger or divestment of its O&M business unit.
- In addition, Sembcorp Marine’s risk-reward appears skewed to the upside post its successful S$1.5b rights issue in 2021, and it should also benefit from the coming upcycle as Singapore’s largest offshore marine company.
Lower oil demand in 2021, but higher in 2022.
- In its latest Jan 22 update, the US Energy Information Administration (EIA) lowered its forecast oil demand growth for 2021 by 0.6mmbpd (vs its Sep 21 forecast) while raising its demand expectations for 2022 by the same amount to account for the negative impact from the proliferation of the Delta variant in 2021.
- Nevertheless, it appears that OPEC+ has a firm control of the global oil market, and thus oil prices should remain well supported above the US$75-80/bbl range in the near to medium term. We also point out that consensus is increasingly talking about an oil price well in excess of US$100/bbl, which is something we had mentioned in Mar 21.
Keppel Corp 2021 Results Preview
- We expect 2021 revenue growth of 5% y-o-y, and for Keppel Corporation to report a turnaround from a loss in 2020 to a profit of S$628m. With 9M21 revenue above that of pre-COVID-19’s 9M19, we believe full-year results will be strong. Note that during its 9M19 briefing, Keppel Corporation stated that it does not expect any impairments.
- We expect the connectivity segment and Keppel Capital to continue to grow strongly, with the latter positively affected by asset monetisation targets that are highly likely to exceed the company’s targets.
- Positive surprise could come from a higher-than-expected dividend payout (1H21 dividend of S$0.12/share was significantly higher than 1H20’s S$0.03).
- We maintain our BUY rating on Keppel Corporation with a SOTP-based target price of S$6.74. Given the more bullish oil price environment, we believe that there is upside to our target price in the near to medium term. At our target price, Keppel Corporation would trade at a 2022F P/E of 14.6x which is a slight discount to its past five-year average of 15.2x.
- See
Sembcorp Industries 2021 Results Preview
- We forecast Sembcorp Industries' revenue to increase by 5% y-o-y to S$5.7b, thus generating a S$308m profit vs a loss in 2020 that was materially impacted by impairments.
- During its 1H21 results briefing, Sembcorp Industries had guided for a weaker 2H performance due to planned maintenance shutdowns at various assets. This led to its share price underperformance in 2H21 - Sembcorp's share price fell 6.1% vs the STI which rose 1.7%. With 2H21 in the rear-view mirror, Sembcorp Industries should outperform in 2022 with share price catalysts including further renewables M&A, the potential award of new solar projects, and a sustained economic recovery post COVID-19.
- We maintain our BUY rating on Sembcorp Industries with a P/B-based target price of S$2.59 which is pegged to a target P/B multiple of 1.2x. We foresee an upward re-rating of Sembcorp Industries’s valuation multiples due to the scarcity value of solid ESG companies in Singapore. At our target price, Sembcorp Industries would trade at 13x 2022 earnings which is reasonable, in our view.
- See
Sembcorp Marine 2021 Results Preview
- While we forecast an 11% increase in revenue for 2021, we expect Sembcorp Marine to report a loss of nearly S$1b on our estimates (1H21 loss: S$650m). As a result, the market should not be surprised if Sembcorp Marine issues a profit warning closer to the reporting date in late-Feb 22.
- At its current share price of S$0.083, we view Sembcorp Marine as having good risk/reward profile given our view that the newbuilding order momentum has troughed and current strong oil prices are supportive of the offshore marine industry. In addition, its 3Q21 business update showed that Sembcorp Marine’s repairs and upgrades segment had continued to win new projects while the global offshore renewables construction industry remains strong.
- We also highlight Sembcorp Marine’s improved financial position post its S$1.5b capital raising which has lowered its gearing to 0.4x as at end-3Q21. The fresh funds should allow Sembcorp Marine to execute and complete its projects as well as for working its capital needs for new orders and projects.
- Maintain BUY with a target price of S$0.11 on Sembcorp Marine based on a target multiple of 0.74x that is pegged to our estimated 2022 book value per share of S$0.14. Our target P/B multiple is a 30% discount to the company’s past-five-year average P/B of 1.07x. In our view, we believe this discount is a reasonable reflection of the industry risks that Sembcorp Marine faces in at least the next 12 months.
- See
Yangzijiang Shipbuilding 2021 Results Preview
- We forecast a 40% y-o-y increase in Yangzijiang Shipbuilding's 2021 revenue to RMB20.8b and a slight 6% decline in net profit to RMB3.1b due to higher materials and operating costs, lower capacity utilisation at its yards, and lower investment income.
- We expect shipbuilding margins to improve in 2022 as Yangzijiang Shipbuilding has started constructing its higher-margin containership orders. In the near term, a potential share price catalyst could be the disclosure of the valuation of its investments arm prior to IPO.
- Maintain BUY and reiterate our PE-based target price of S$2.00 on Yangzijiang Shipbuilding. We use a target P/E multiple of 9.3x (+1 standard deviation above Yangzijiang Shipbuilding’s five-year average) which is applied to our 2022 EPS estimate. At our target price, Yangzijiang Shipbuilding would trade at a P/B of 1x which we believe is fair.
- We highlight that at end-1H21, Yangzijiang Shipbuilding’s potential net cash per share (ie plus debt investments) was S$0.81 which equates to 62% of Yangzijiang's share price.
- Yangzijiang Shipbuilding (SGX:BS6)
- See
Adrian LOH
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-01-14
SGX Stock
Analyst Report
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