OIL & GAS OVERWEIGHT
Dec 2009:
- Good end to the year· Closing the year on a strong note2009 was no doubt another tumultuous year for the oil & gas industry. Onthe global front, crude oil and the USD continue to tango while onfundamentals, demand struggled to recover and are only now seeingsome light of day. For December, crude oil closed up 2.7% fromNovember, largely on the decline in the USD. Going into 2010, we seethat only a recovery in demand will keep oil prices sustainable. Looking atthe situation at home, 2009 was difficult for the o&g service sector. Jobflow was a mere trickle but we are seeing things picking up. Rest assured,contract flow has been stronger in recent months and companies havebeen powering ahead with acquisitions for future growth. We believe that2010 will be a promising year.
- News and viewsNotable news for the month includes Petronas’s venture into Iraq. Thegroup is planning to spend up to US$7bn to develop oil fields with JapanPetroleum Exploration. Besides this, there were 2 major contract wins thismonth, one for SapuraCrest (RM1.5bn PSC job) and Wah Seong(RM550m). Also, asset acquisitions were rife with Alam Maritim addingvessels, Perisai going into the MOPSU business, UMW increasing theirstakes in the Naga rigs and Kencana looking to increase its toehold in theMermaid rigs.
- Dayang Enterprises – Initiated with a BUYWe added Dayang to our coverage this month. Dayang provides offshoretopside maintenance services, minor fabrication and offshore hook-up andcommissioning. The small cap company currently has a healthy orderbookof RM500m to last them into 2011 and are bidding for some RM2bn ofjobs of which they hope to secure RM350m over 2010. Besides that 2010will see maiden contributions from new acquisition Borcos Shipping. Thecompany also boasts a healthy balance sheet and pays good dividends.We have a RM2.20 target for the stock.
- Maintain Overweight
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