■ Stocks heavily discounted but EPS cuts not over. No urgency
to turn outright positive.
■ Cost recalibration to return offshore services to viable longterm
profitability. Expect an uneven recovery, led by wellfunded
asset owners with opex and production exposure.
■ BUYs on Ezion and Pacific Radiance as early recovery plays.
We see a more gradual Brent recovery to USD70-75/bbl by 2017,
given slow supply response, influence of shale and geopolitical
risks. Further cuts to industry capex cannot be ruled out if oil price
stays lower for longer, as hedges have shielded many oil companies
from the full blow for now. Knowing we cannot accurately call the
oil-price cycle, we simply seek to identify oversold stocks which
may warrant early fundamental long positions.
What’s Our View
Oil services will eventually stage a comeback, but expect cost
recalibration and consolidation to feature heavily in the recovery,
inflicting short-term pain to all service providers. At the current
stage, players with opex and production exposure may still benefit
from oil companies enhancing existing fields for quick paybacks.
Against this backdrop, we prefer maintenance providers and OSV
owners with production-focused fleet. These players are also more
likely to lead a cyclical rebound, although beneficiaries would be
restricted to a narrower group, as over-leveraged and weak players
may not hold out. We least prefer rigbuilders given their high
exposure to capex and offshore drillers.
Greater clarity has emerged on revenue following a disappointing
1Q15 earnings season, but margins and therefore EPS remain hard
to predict. We believe that EPS downgrade cycle has not ended
and our FY15-16 EPS are 11-14% below consensus. We have thus
switched all P/E valuations over to P/BV. In estimating if stocks are
sufficiently priced for the bottom, we cross-reference P/BV
valuations with replacement value for selected asset owners.
We continue to like Ezion for its more resilient opex exposure and
liftboat growth potential. Pacific Radiance’s competitive cost
structure and assets should help it emerge a winner from OSV
consolidation. PACC Offshore may still outperform if it resolves
Mexican hiccups and secure a charter for its second SSAV.
Avoid Keppel and Sembcorp Marine as capex-sensitive shipyards
are late cyclicals and would still face rig oversupply even if oil
. Swiber, Vard and Cosco are either highly-leveraged and/or
face operational and execution challenges. There is no rush to buy
the others for lack of near-term catalysts. Upside risk will come
from a broad-based valuation expansion that outpaces EPS
. (Read Report)
Source : Maybank Kim Eng Research
Labels: Ezion Holdings, Keppel Corp, Offshore Marine Sector, Pacific Radiance, Sembcorp Marine