SG O&M: Citi has sector report. Cite that we are nowhere near Cycle-End and worthwhile to remain Opportunistic. Maintain Buy on KepCorp and note that sector Outlook intact, think that recent sell-off has raised attractiveness of KEP’s risk-reward profile and provided for an appealing buying opportunity. Concerns of oversupply may be premature as several data points suggest mid-way through a potentially more pronounced rig-building cycle…
In near term, day rates and charter duration will be two key datapoints to look out for as they will determine outlook beyond 2011. Ytd, KEP’s and SMM’s order wins have collectively exceeded orders secured during early stages of last cycle. Continue to like KEP for its better earnings visibility and more attractive valuations (KEP O&M: 12x P/E vs SMM: 15x P/E)….
However, near-term caution arising from oversupply concerns and worries over Greece’s debt woes may result in a moderated order win momentum; and place outstanding jackup options (worth $1.9b/$2.5b for SMM/KEP) at greater risk of lapsing.
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