早报网www     powered by Google
企业公关网

BROKERS’ TAKE-Offshore and Marine
BROKERS’ TAKE-Offshore and Marine

(2007-11-02)

Offshore and Marine
DMG & Partners, Nov 1

FIRST it was SembCorp Marine. Then came Labroy Marine. Suddenly, investors are sitting up to the fact that foreign exchange may be the next fear factor. Both companies have collectively chalked up close to half a billion dollars in unrealised forex losses. SembCorp Marine’s share price took a big hit, free-falling by 18 per cent since the news broke that the marine engineering firm has discovered unauthorised forex transactions. Labroy got off the hook, as the bad news was packaged with something palatable – a S$2.4 billion takeover by Dubai Drydocks World LLC.

Just a knee-jerk? Following the shocking announcements, investors started selling down shares of other offshore & marine (O&M) companies. It is not difficult to see the rationale for this herd behaviour, considering the two casualties were industry bellwethers. However, this contagion may not be justified as it is unlikely that every company in town is involved in such practices. It may thus be more appropriate to know the true exposure to forex for individual companies and how they deal with them before reacting. For example, Keppel Corp, the world’s largest rig builder with over S$11 billion in orders, reassured investors that it does not enter into forex contracts without approval at the group level.

Forex not the only risk: Rather than simply focusing on forex, there are other issues which investors need to be mindful of when investing in these companies. Execution is key when it comes to oil-rig projects. Any delays in deliveries will lead to hefty penalties. Incumbents like Keppel and SembCorp Marine can bank on their experience, but the newer players with little track record may still need to prove themselves.

Fundamentals well-supported: The industry is still riding high primarily due to rising oil prices. Crude oil was trading at US$58.36 per barrel a year ago, but has since surged 35 per cent to US$93.53. This is the biggest 12-month increase since 2004, rising on the back of geopolitical tensions, a depreciating US dollar, as well as falling inventories and production shortages. Even if there were a 20-30 per cent fall in oil prices from current levels, the industry will still remain highly profitable, guaranteeing that orders will continue to flow.

But valuations may be rich for some: The O&M industry has seen one of the best returns since 2004. The big-cap names have all been convincing outperformers of the market and valuations appear to be rich despite the recent sell-down. The “Big Three”, comprising Keppel Corp, Cosco and SembCorp Marine, are trading at 35.4 times FY07 and 24.7 times FY08 earnings. In contrast, the second-tier oil and gas companies are trading at 15.2 times FY07 and 11.6 times FY08 earnings.

Picks of the sector: Based on our valuation metrics, ASL Marine, Federal International and Sinwa look attractive. We believe that as a group, it should outperform its peers in the next 12 months.

《The Business Times》


企业公关网总览