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Top stock picks for Singapore oil & gas services sector revealed

Singapore Business Review

Investors advised to select growth stocks.

Ezion Holdings, Nam Cheong and Kreuz Holdings are all exceptional picks, according to OSK-DMG, because of their strong growth and earning profiles, attractive valuations and potential for bagging new contracts. Meanwhile on the opposite end of the preference spectrum, Ezra and TGH are least preferred by the research firm.

Here's more from OSK-DMG:

Solid margins from rig builders. Keppel Corp (KEP)’s results were slightly above expectations while Sembcorp Marine (SMM)’s were in line. KEP and SMM achieved solid 2Q13 operating margins of 14.1% and 13.0% respectively. Outlook remains mixed as strong rig demand is offset by intense price competition from overseas yards. We believe KEP and SMM will continue to pursue new products to differentiate their yards from competition. KEP is working on designs for floating liquefied natural gas (FLNG) with Golar and an ice-class jack-up with ConocoPhillips, while SMM is aiming to speed up productivity gain with its Tuas yard.

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Chinese yards to consolidate to trim excess capacity. Yangzijiang Shipbuilding Holdings (YZJ)’s results beat estimates on higher HTM investments, while Cosco Corp Singapore (COS) again disappointed vs consensus numbers. China recently announced a three-year plan to restructure the sector by controlling new capacity, promoting innovation and moving to high-end offshore products. We believe such moves are positive in the long term but see no catalyst to invest in the sector now.

Disappointment from Vard in Brazil. Vard surprised us and the market with a NOK20m net loss in 2Q13 due to ongoing challenges in Brazil, where we estimate it booked a NOK200m provision for delays and potential losses and NOK80m in goodwill writedown at its Niteroi yard. The recent NOK6.5bn award for four pipelaying support vessels (PLSVs) from Technip-DOF is positive and we expect 3Q13 to show a recovery in EBITDA margins to 8%, assuming no more write-off and provisions.

Stick to growth stocks. Ezion Holdings (EZI) remains our top sector pick given its strong growth profile and undemanding valuation. In the mid/small-cap space, we like Nam Cheong (NCL) and Kreuz Holdings (KRZ) and expect the stocks to re-rate on their strong earnings profiles, attractive valuations and positive news flow from new contracts.



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