O&M

O&M: Deutsche reiterated its unfavourable outlook on the O&M sector, citing that the recent share price gains in Keppel Corp and Sembcorp Marine may be an opportunity to pare down exposure on the counters.

Since the start of Oct, Keppel Corp and Sembcorp Marine gained 7.5% and 13.5%, respectively, while WTI rose 2.6% over the same period, largely due to upbeat demand, lower rig count and a weaker dollar.

However, the industry continues to face severe headwinds from the cut in capex plans by upstream oil majors into 2016 on the back of the rig oversupply, and is expected to translate into the continue dearth of new orders for the Singapore O&M players.

Any new orders contracted are also likely to come with lower profitability, due to the aggressive price competition in light of the cyclical downturn.

In addition, Deutsche cited that market watchers may begin to question whether there may be any potential write-downs on Sete Brasil contracts, given that both Keppel Corp and Sembcorp Marine have not been paid by the ailing company for almost a year due to chronic cash-flow shortage.

The house has a Hold rating on Keppel Corp (TP: $7.00) and Sell on Sembcorp Marine (TP: $2.00).