UOB Kay Hian maintains "overweight" call on offshore sector, prefers Keppel and SembMarine

The Edge Singapore
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Oil prices looks “well supported” at above US$100 per barrel in the near to medium term.

UOB Kay Hian’s Adrian Loh has kept his “overweight” call on the local offshore and marine sector, given how steady oil prices will help keep a steady stream of orders in the coming year.

In his Nov 23 report, he cited rig builders Keppel Corp and Sembcorp Marine as his two top picks, with target prices of $10.11 and 15.6 cents respectively.

Loh notes that the rig market, particularly the semi-submersibles segment, has continued to gain strength this year. He points out that utilisation rates that have gone back to pre-pandemic levels, and day rates.

Both Keppel and Sembcorp Marine have won large orders this year, especially so in the current second half, bringing their combined new orders won year to date to around $15 billion.

This bodes well for the impending merger of the offshore business of these two entities, seen to complete in first quarter next year.

Loh expects more of such orders this coming 2023, given how oil prices looks “well supported” at above US$100 per barrel in the near to medium term.

Year to date, only 10 rigs have been taken out of the global market either via recycling or conversion.

In a sign of growing demand for rigs, there had been 45 rigs changing hands – the highest level of activity since 2017. For whole of 2021, there were only 20 rigs transacted.

“In our view, this is positive as the extraction of excess supply should allow utilisation and day rates to continue to further firm up going forwards,” says Loh.

Loh sees the physical energy market to remain tight. “Given the structural undersupply of energy and the lack of capex and supply response by producers, the long term case for energy remains bullish, in our view,” he says.

Keppel Corp shares traded at $7.47 as of 10.52am, up 0.54%, Sembcorp Marine shares traded at 13 cents, up 0.76%

 

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