Thursday, March 31, 2011

Oil Services

Oil Services: UOB has Oil Services Strategy Report. Note that valuation gap has widened. Ytd, the small-cap oil services stocks have underperformed (-7% on mkt-cap weighted basis) the offshore heavy engineering stocks (+7%) and the STI ( 3%). Rig builders Keppel Corp and Sembcorp Marine have each appreciated 8% on strong rig order wins…..

Add that the FY11F P/E and P/B differential between the offshore heavy engineering and oil services segments has widened to 6.5x and 2x respectively.
House believes the offshore O&G mkt is headed for a multi-yr boom and small-cap oil services stocks will eventually play catch-up. Sector-wide recovery depends on recovery in OSV charter rates, without which stocks can only outperform on Co. specific growth drivers…..

House use a bottom-up approach while waiting for sector recovery. Top stock picks remain Ezion Holdings (TP: $0.90) and Ezra (TP: $2.10) on their respective Co. specific growth drivers. Note that OSV shipyards still in a challenging situation. Apart from STX OSV(NOT RATED) which is a high-spec vessel builder, the OSV shipyards as a whole face the toughest challenges, but house is neutral on these stocks as their low P/B valuations have significantly discounted their difficult conditions.
ting SP, SIA, SATS, CDLHT, AirAsia and ComfortDelGro.

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