Ideas Troika

kiasutrader

Publish date: Tue, 21 May 2013, 03:00 PM

This is our maiden issue of "RHB Ideas Troika", in which we highlight three key stories daily to tempt your investment appetite. In addition, it will also incorporate a compendium of recent reports issued by RHB. In this inaugural issue, we highlight the oil & gas (O&G) sectors for Singapore and Thailand markets. Whilst we are NEUTRAL the Singapore O&G space, we find Ezion a compelling BUY. For the Thai O&G space, we upgraded from UNDERWEIGHT to NEUTRAL, on the back of relatively stable earnings this year, and the top pick is PTT.

Singapore Oil & Gas Services

Key sector pick: Ezion Holdings

The recent earnings season ended with more negative than positive surprises. Highlights were: i) No surprises among the large-caps, as rig builders' operating margins beat our estimates but missed on revenue. KEP and SMM kept their long-term operating margin guidance of 10-13%. We see no significant order book and earnings growth this year. ii) MTQ surprised on the upside with subsea improvement. Post results, we raised EPS by 26-30% and TP to SGD2.20. iii) AusGroup (AUSG) and Technics Oil & Gas (TGH) reported weak results and saw steep drops in their orders backlog due to delays in project awards. We cut TGH and AUSG to Sell as we believe the stocks will de-rate on lower order visibility and weak earnings in the upcoming quarters. Stay Neutral on the O&M sector. Our top large-cap BUYs are EZI (TP: SGD3.00), VARD (TP: SGD1.69) and SCI (SGD5.85) while our small/mid-cap favourites are NCL (TP: SGD0.35) and MTQ (TP: SGD2.20)

Thailand Energy sector

Key sector pick: PTT

Earnings fell marginally by 5% to THB82.2bn for the energy sector this quarter due to lower crude oil prices, accounting for 32% of our FY13F. We expect stable earnings this year, with crude oil price seen to trade in the range of USD100-110/bbl. There are several key catalysts that will support share prices: (i) IPP bidding results to be announced in June; (ii) Government's announcement on plans to re-price LPG and possibly NGV; (iii) announcement of the investments in both the 660kbpd refinery in Vietnam and a world class petrochemical refinery in Indonesia and (iv) finally the potential stake in Natuna gas field in Indonesia. We upgrade sector rating to NEUTRAL. We also upgraded TOP (TP THB69) and PTTGC (TP THB82) to NEUTRAL and we maintain our BUY on PTT (THB388) and GLOW (TP THB82).

Sarawak Oil Palms (SOP MK)

Consumer Non-cyclical-Agriculture

Recent meetings with SOP's management point to a challenging plantation operating environment amid weak CPO prices. Its refinery has however turned profitable since 4QFY12, registering a MYR4.9m PBT in 1QFY13. We see likelihood of distressed assets coming into the market as prices remain depressed and planters facing cash flow worries out of their investments. As SOP has the balance sheet strength, it may be able to acquire undervalued assets when they surface. With the general elections over and Sarawak remaining under the governance of the ruling coalition, political risk premiums attached to Sarawak-based companies should also be lifted, making SOP's valuations particularly attractive at 13.6x FY14 PER relative to peers. Coupled with its balance sheet strength, we maintain BUY with FV of MYR6.84, based on 16.0x FY14 PER.

Source: RHB

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