O&M

O&M: Maybank-KE is in no hurry to be positive on the O&M sector despite heavily discounted stocks, and would prefer to identify oversold stocks that may warrant early fundamental long positions, as this is more prudent than calling the oil-price cycle outright.

Within the sector, Maybank-KE prefers maintenance providers and OSV owners, especially those with production-focused fleets, as these could still benefit from ongoing oil production. These players are also more likely to lead a cyclical rebound, but selection is key as over-leveraged and weak players may not hold out.

Meanwhile, the house likes rig builders the least, due to their high exposure to capex and offshore drillers.

From a valuation basis, the house switches all P/E valuations in favour for P/B and replacement value. This is as margins and hence EPS remains hard to predict, while cross referencing P/B and replacement value helps to estimate whether stocks have reached the bottom.

For stocks under coverage, Maybank-KE likes:
1) Ezion (Buy, TP shaved to $1.55 from $1.57) – for more resilient opex exposure and liftboat growth potential.
2) Pacific Radiance (Buy, TP cut to $0.8 from $1.00) – competitive cost structure and assets should help it emerge a winner from OSV consolidation
3) PACC Offshore (Buy, TP: $0.65) – could still outperform if it resolves Mexican hiccups and secure a charter for its second SSAV.

Maybank-KE cautions on these stocks:
1) Keppel Corp (Hold, TP: $8.50) and Sembcorp Marine (Sell, TP $2.45) – capex sensitive shipyards are laggards, and faces rig oversupply even if oil rallies
2) Swiber (Hold, TP: $0.17), Vard (Sell, TP increased cut to $0.35 from $0.40) and Cosco (Sell, TP $0.43) – Either too highly leveraged and/or faces operational and execution challenges
3) Nam Cheong (Hold, TP shaved to $0.32 from $0.33), Yangzijiang (Hold, TP $1.35) – lacks near term catalysts.