O&M

O&M: Maybank-KE maintains Underweight on the O&M sector, and sees any potential oil-price reversal to come in 2H15. Operators with strong balance sheets and cash flows should better weather the rout as weaker players are weeded out. Now that Brent is hovering around US$60/bbl, the entire value chain could now be vulnerable. Industry margins could be affected as weaker players focus on cashflows than profitability. While most O&M names under coverage have the financial wherewithal to weather this downturn, Cosco and Swiber flags red with its high gearing and weak cash flows, compounded by operational weakness. For asset owners, utilization rate could be favored over pricing. After cutting OSV rates by 4-17%, Maybank-KE lowers FY15-16e EPS for PACC Offshore and Pacific Radiance to 11-19%. For Nam Cheong, prices may be lowered to ensure vessel sales. Maybank-KE cuts sales prices by 5% and shipbuilding margins by 2ppt, resulting in 11-12% FY15-16e EPS cuts. Meanwhile, valuations are looking increasingly attractive for long-term Buys for well-positioned players. Nevertheless these stocks could take another beating before recovering, as the industry comes to grips with a lower oil price environment. Maybank-KE prefers Ezion for exposure, on stronger earnings visibility. Maybank-KE maintains ratings for the following O&M names: Keppel Corp: Hold, TP $9.00 Sembcorp Industries: Sell, TP $4.00 Sembcorp Marine: Sell, TP $2.65 Cosco Corp: Sell, TP $0.54 Yangzijiang: Buy, TP $1.40 Vard: Hold, TP $0.71 Nam Cheong: Buy, reduces TP to $0.35 from $0.50 Ezion: Buy, TP $1.93 PACC Offshore: Buy, reduces TP to $0.81 from $0.92 Pacific Radiance: Buy, reduces TP to $1.15 from $1.33 Mermaid Maritime: Buy, reduces TP to $0.38 from $0.42 Swiber: Hold, TP $0.35