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DBS Equity Research:Wired Daily 15 Jan 2015

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Publish date: Thu, 15 Jan 2015, 11:41 AM


Oil and Gas Sector - Softening day rates and utilisation for rigs; service rig market relatively more resilient

Update on Oil & Gas sector. Falling oil prices are dragging down day rates, utilisation and asset values of drilling rigs, which are already struggling with supply issue from massive deliveries. Management of companies like Apexindo and Marco Polo expect charter rates of US$130-140k/day for their new jackup rigs in Southeast Asia currently, down 15-20% from US$150-160k/day previously. We estimate that this would narrow EBITDA margins from 60-70% to c.50%, and net margins to normalised levels of <20%.

While the OSV market has been holding up better than rigs, day rates are expected to come under pressure in the next few quarters with vessel-to-rig ratios being less attractive than earlier anticipated. Competition is expected to intensify in the lower-end AHT/ AHTS segment and in the PSV segment, which has a relatively large orderbook in excess of 20% of fleet. Service rig (liftboat and refurbished jackups) segment, however, is relatively resilient, underpinned by its rising endorsement as a cost-efficient solution over workboat / barges in the region.
Ezion expects its 4-5 vessels coming off hire in 2015 to be renewed at similar rates, if not higher.

Chou Cheng Ngok, the CEO and executive director of Popular Holdings, is attempting to take the company private. The offer price for each offer share is S$0.32 in cash, a 39.1% premium over Popular Holdings' last traded price of S$0.23. Mr Chou and his wife currently own approximately 61.25% of Popular Holdings' total issued shares.

JTC Corporation is building industrial space ahead of demand to avoid a repeat of the problem during 2010-2013, when supply lagged demand and led rents to spike about 20 per cent per year. This is the state industrial landlord's 11th "innovative space" to date, which targets niche semiconductor firms. Facilities launched earlier catered to clusters including aerospace, biomedical and chemical.

Confidence among Singapore retail investors is at its lowest level since December 2012, but still above neutral, according to a half-yearly survey by JP Morgan Asset Management. The survey also found a sharp shift towards multi-asset funds as investors deal with multiple uncertainties in the market. The Investor Confidence index fell eight points to 113 in December 2014 from 121 in June.

Singapore Exchange (SGX) will be collaborating with ICAP, a leading markets operator and provider of post-trade risk mitigation and information services, to boost the growing Asian currency market. SGX will develop a new range of Asian currency products and services with ICAP. They will initially offer customers access to SGX-listed currency derivatives via the ICAP's EBS platforms, to be cleared by SGX. Through this collaboration, customers will be able to execute and clear selected SGX Asian FX Futures contracts in specified large sizes called negotiated large trades.

U.S. stocks fell as a decline in American retail sales and slump in copper prices spurred concern that global growth is slowing. Still, stocks ended off session lows after oil price rebounded and the Federal Reserve's Beige Book said the U.S. economy continued to expand last month. The U.S. economy continued to expand from mid-November through late December, bolstered by higher consumer spending and expanded manufacturing in most places as prices 'increased slightly' on balance, the FED report said. December retail sales fell 0.9% m-o-m, worse off than consensus estimates of 0.1%. Meanwhile, oil price rebounded with Brent for February settlement gaining 4.5% to $48.69 pbl, this even as U.S. government data showed crude inventories expanded last week.

Source: DBS
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