May 17, 2010

Malaysia Oil and Gas Sector Stocks Outlook by ECMLibra

10th – 16th May 2010 May: Malaysia Stocks unaffected by crude dip  

•  Local share prices unaffected by crude oil dip 
Crude oil futures closed the week down again by 4.7%, close to testing the US$70 level as the markets attention has turned to high US crude oil stock levels. Besides that, negative correlation with the USD also added to weakened crude oil prices. Going forward, we believe that should the market continue to play up on news of high crude oil stock levels, crude oil prices have the potential to weaken further. At home, share prices were positive w-o-w despite crude oil prices with the exception of Petra which was down close to 5% on news of their private placement and rights issue proposal. 

•  News and views

Story of the week for the sector was surely Sime Darby’s RM964m write down for their engineering & utilities segment. Of that sum, RM514m was for their oil & gas related projects in Qatar of which they have not been able to claim variances on orders. Besides this, interesting news to note include  Perisai selling two recently bought jack-up rigs to Nagendran Nadarajah, the director which only just sold out his stake in the company to Singapore’s Ezra Shipping for RM18.3m. Next up was Petra Perdana proposing a much needed private placement (supposedly to an established shipbuilder hence Grade 1, Shin Yang, Labuan Shipyard, Coastal Contracts,  Sealink and Nam Cheong are some of the names that come to mind) followed by a rights issue that  would come with detachable warrants. The move, if it goes through,  will cause heavy dilution we believe but on the flip side, raise cash that the group badly needs now to service their operating lease, new ship deliveries and also borrowings. We made a drastic 87% slash to our FY10 numbers for Petra as we are just not confident that the group can turn in results matching last years. 

On contract news, Kencana was the winner again, snagging a RM92m job for subsea pipe installation from the Ministry  of Energy, Green Technology and Water. The contract entails the installation of the pipeline between a water treatment plant in Beaufort and Labuan, as well as other related external works.

•  Maintain Overweight
Some current weakness in crude oil prices does not deter us from continuing to overweight the sector.  To note, YTD  the industry has seen some RM3.2bn of jobs and we expect more in the 2H from newer developments. We continue to like Wah Seong and Dayang. 

by ECM Libra