O&M

O&M: Deutsche cites that 2016 will be filled with headwinds for the sector, and reckons that the second half may be a better time to bottom fish.

House believes that as the year progresses, the industry should see more contract cancellations/ pushouts, possible M&A activities, further fund raising activities and asset sales.

While P/B valuations are low with Keppel Corp trading at 1.0x and SMM at 1.2x, they could compress further given continued negative industry newsflow.

Apart from weak industry fundamentals, a key risk lies in Brazil, where major customer Sete Brasil has halted payments to both Keppel Corp and SMM since Nov 2014. Deutsche estimates that 2016 earnings for Keppel Corp and SMM could decline 7-12% and 20-25%, respectively, if these contracts are cancelled.

The house remains cautious on the industry, maintaining Hold on Keppel Corp (TP: $7.00) and Sell on SMM (TP: $1.30).