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OSPL - MARKET PULSE: Oil & Gas Strategy, UE E&C, Pacific Andes (03 Dec 2012) | | | | | |
MARKET PULSE: Oil & Gas Strategy, UE E&C, Pacific Andes
03 Dec 2012
KEY IDEA
Oil and Gas: Always a vital resource, always returns into favour
Summary: The FTSE Oil and Gas index delivered a strong performance in the first quarter of the year and held steady before slipping in Apr. From mid
Jun, however, the higher beta index recovered on hopes that central banks would step up efforts to bolster the global economy injected optimism in
the markets. Almost like a mirror image, the index lost steam in Oct before embarking on a recovery again, and we note that despite short to medium
term fluctuations, investors who kept the faith during periods of uncertainty were rewarded as the sector would always return into favour. A focused
stock-picking strategy would have fared relatively well, and we advocate a similar style in 2013, overweighting companies that are operating in
sub-sectors with more favourable demand-supply dynamics. Going into 2013, we remain OVERWEIGHT on the oil and gas sector, preferring Keppel
Corporation [BUY, FV: S$12.49], Sembcorp Marine [BUY, FV: S$5.84], Ezion Holdings [BUY, FV: S$1.70] and Nam Cheong Ltd [BUY, FV: S$0.28]. (Low Pei
Han, Chia Jiunyang)
MORE REPORTS
UE E&C: Mixed outlook in 2013
Summary: Going into 2013, we expect the outlook for UE E&C to be fairly mixed. While the group has a strong order-book (estimated S$400m) and a good
pipeline of residential development projects, it also faces increasing risks from a tighter labour market and a potential EC glut. As the government
tightens the foreign labour supply, the group may have to grapple with higher manpower costs, resulting in lower profit margins. The EC market could
also be facing a potential supply glut as the government intends to roll out a record number of EC sites. In addition, the government may introduce
measures to rein in EC prices. Meanwhile, we note that UE E&C’s share price has risen close to our target price of S$0.68. Given the limited upside,
we downgrade to HOLDwith an unchanged fair value estimate. (Chia Jiunyang)
Pacific Andes: Clarification on the FAS issue
Summary: Following certain media report that Pacific Andes International Holdings (PAIH) and subsidiaries have gained Russian fishing assets without
the relevant approval, the group has issued a joint announcement. In it, it states that “it does not own any fishing quotas in Russian waters” and
“believes that the group’s supply of fish is in compliance with existing Russian law”. However, we have also spoken to management to get further
clarity. The group has not received any official notification from the authority, but is planning to set up a meeting to get further clarification.
It also reiterated that there is no change to its current operations. However, in the worst case scenario, and if they are not permitted to get fish
from there, this could result in a premature termination of its prepayment contracts, and the counterparties will have to refund the investments
back to the group. Pending official clarity on this issue, we expect PARD’s shares to remain under pressure as fishing forms a critical part of its
operations. While we have a medium-term HOLD rating on this stock and S$0.143 fair value, this uncertainty is likely to cap its price performance. (
Carmen Lee)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- US stocks were little changed on Friday, amid the continuing political debate over how to avoid the fiscal cliff. Senior Republican John Boehner
said the budget talks were at a 'stalemate'. The Dow, S&P 500 Index and Nasdaq all ended flat, at 13,025.58, 1,416.18 and 3,010.24, respectively.
- China’s manufacturing sector expanded in Nov at the fastest pace in seven months, after the PMI reached 50.6, though slightly below economists'
forecasts, but still up from Oct's 50.2 reading
- Singapore's 2012 GDP growth "may well be lower" than the Trade and Industry Ministry's latest estimate of 1.5%, Prime Minister Lee Hsien Loong
said yesterday, adding that growth of 2-3% a year would be considered good growth in future.
- Joyas International Holdings expects a loss for 2012 due mainly to weak sales and margins in its main markets of US and Europe, possible
restructuring costs and provisions due to downsizing of its metal gifts and jewellery business.
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MARKET WATCH 3rd Dec 2012
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