May 22, 2013 11:27 SGT PINPOINT Public Relations Sincro Energy Systems launched in Singapore yesterday, with an event held for 50 of its...
Investment case intact after the latest round of earnings
Helix MediaMar 16, 2012 12:21 SGT
- Asia offshore earnings momentum remains positive. Larger caps continue to outperform, driven by stronger margins. We argue that smaller caps will catch up in earnings momentum. Aggregate reported revenues in the earnings season (mainly Q4) were USD4,501m (Q3 USD3,582m), 10.6% above our estimate of USD4,071m and 6.7% above consensus (we have assumed our estimates for companies without quarterly consensus, for Ezra, EOC, ASL, Jaya, Kreuz). Stronger revenues were driven largely by project-based activities (subsea, EPCIC, execution of newbuild orders at yards) and the consolidation effect of Go Marine by OTML. Excluding OTML, aggregate reported revenues were USD4,252m, 5.7% above our estimate of USD4,021m and 2.3% above consensus. Operating income (EBITDA) was USD920m (previous quarter USD743m), 31.4% above our forecast of USD700m and 13.4% above consensus, largely due to better performance by the large-cap yards Keppel, SembMarine and STX OSV. Excluding these, aggregate EBITDA was USD133m, 10.9% above our forecast of USD120m and 19.7% below consensus.
- Supply/demand tightening; utilisation to improve before dayrates. Global utilisation rates in key markets are showing an uptick. In 2011, the market continued to absorb excess tonnage, with improving demand dynamics. Utilisation stabilised at an average of 76–79%, and eventually started to tick up in Q4 and early 2012, supporting our view that 2012 could be the turning point for the OSV market. We forecast 6% incremental demand growth (from bottom-up analysis of individual field and region requirements globally) in 2012, versus 5% global fleet growth. We expect utilisation rates to rise to 82–85% this year for the global OSV fleet and expect rates to increase to USD1.80–2.00/bhp/day.
- Pent-up demand expected, as OSV ordering pace is slower than rig orders. Newbuild orders placed in 2010 and 2011 represented just 1.6% and 2.3% growth in the global OSV fleet. Compared to ‘demand’ – i.e. the total number of rig orders in 2011 of 60 jack-ups and 36 UDW floaters – the ratio of OSVs to one demand unit was 0.74, well below the 3-year average of 2.55. Therefore, we believe there is pent-up demand for 174 OSVs if the ratio reverts to mean.
- E&P update – increased confidence in strong market. As mentioned in our E&P spending update on 7 March, the 36 oil companies covered in our 2012 E&P spending update expect a spending increase of 17% in 2012 and 10% in 2013. Oil companies have increased their 2012 budgets by a combined 9%-points since our 2011 report, as a still-high oil price above companies’ comfort zone is boosting cash flow and confidence. We believe Asia companies should benefit from the increase in spending.
- Valuation. Despite a strong share price performance this year, we argue that the sector’s risk/reward remains attractive, at a 22% discount to NAV and on a 2012e P/E of 9.4x.