SINGAPORE (March 17): CIMB is staying “neutral” on the offshore & marine sector as industry uncertainties cancel out the positives.
For one, CIMB expects crude oil price to remain range-bound at US$45-60/bbl this year.
Although OPEC has stuck to its production ceiling of 32.5 million bbls/day, the number of drilled-but-uncompleted (DUC) wells and shale rigs is inching up while US stockpiles stay high.
And while FY16 impairments have narrowed to US$1.2 billion from US$1.7 billion in FY15, CIMB does rule out further impairments in FY17, especially in the small-cap O&M space, which has seen balance sheet and cashflow come under stress.
“That said, we believe the industry is on a better footing in view of the better FY17F crude prices and total impairments of US$3.7 billion ($5.2 billion) booked in the past two years,” says lead analyst Cezzane See in a Thursday note.
As it is, oil and gas contracts are flowing back into certain pockets such as players with exposure to the Gulf of Mexico as well as shallow-water play and production although there has not been any significant increase in offshore capex.
Currently, small-cap stocks are trading at 1-year forward P/BV of 0.47x, slightly above the 0.41x in Dec 16. A key near-term risk is Ezra filing for judicial management, which would cap the level of optimism on any recovery in the offshore small-cap O&M segment.
“We have a clear preference for stocks with a healthy balance sheet to ride any sector upcycle,” says See who has “buys” on CSE Global, Ezion Holdings and Mermaid Maritime with target prices of 59 cents, 45 cents and 28 cents respectively.
As at 11.46am, shares of CSE, Ezion and Mermaid are trading at 54 cents, 35 cents and 21 cents respectively.
