德银-亚太地区-石油与天然气行业-2018亚太能源展望：增长与规律间的平衡-20180103-122页_11mb

2018 APAC Energy Outlook Summary

Core Content

This document provides an outlook on the APAC energy sector for 2018, emphasizing the balance between growth and discipline, and highlighting investment themes and regional stock picks. The analysis suggests a cautiously optimistic view on Energy equities following three years of underperformance since the oil price collapse.

Main Points

• Energy Equities Outlook:

  • The document suggests that the Energy sector is poised for outperformance in 2018.
  • APAC energy companies have reconfigured their operations to function in a USD40-50/bbl oil price environment.
  • The forward curve moving into backwardation indicates upside potential for oil prices due to strong demand growth from emerging APAC countries.
  • This trend is beneficial for E&P and capex-related companies as it encourages oil production revival in China and India.

• Capital Discipline and Operating Efficiency:

  • Between 2009 and 2014, despite rising oil prices, ROEs declined, suggesting inefficiencies.
  • The current focus is on maximizing shareholder returns through capital discipline, with evidence that a balance between growth and capital discipline is achievable.
  • Cash returns to investors are expected to return to levels seen during the peak oil price periods in 2013 and 2014.
  • Free Cash Flow (FCF) generation is projected to be at its best in history, more than double that of 2009.
  • Capex/DD&A has decreased significantly since 2009, with a peak of 2.9x and a current level of 1.0x, indicating improved capital discipline.

• Investment Themes:

  1. Rising Cash Returns to Investors:

     • Companies are focusing on returning value to shareholders.
     • FCF generation is expected to improve significantly.
     • Capex is projected to grow by 12% in 2018, with upstream and downstream segments expected to grow by 12% and 16%, respectively.

  2. Upside Risks to Oil Price:

     • The oil market is moving towards rebalancing, with potential for medium-term price increases.
     • The oil curve has moved into backwardation, indicating market tightness.
     • Analyst forecasts for oil prices have historically underestimated actual prices, suggesting potential for higher oil prices in 2018.
     • CNOOC and Santos are highlighted as being most leveraged to oil price recovery.

  3. Capex Rebounds:

     • Capex-related companies saw a rebound in 2017 with E&P and natural gas & pipelines seeing significant increases.
     • The document suggests that capex will continue to grow in 2018, especially if oil prices remain above USD60/bbl.
     • SEG and Sembcorp Marine are top picks due to their project pipelines and backlog.
     • SSC is considered a least preferred name due to uncertain project profitability.

Key Information

• Top Picks in APAC:

  • China: CNOOC Ltd (0883.HK), Sinopec Ltd (0386.HK), Sinopec Kantons (0934.HK), BPCL (BPCL.BO)
  • Australia: Oil Search (OSH.AX), Santos (STO.AX)
  • New Zealand: Meridian Energy (MEL.NZ)
  • Japan: INPEX Corp (1605.T)
  • India: Reliance Industries (RELI.BO)
  • Korea: LG Chem (051910.KS), Kumho Petrochemical (011780.KS)
  • ASEAN: IRPC PCL (IRPC.BK), Sembcorp Marine (SCMN.SI)

• Least Preferred Stocks:

  • China: PetroChina-H (0857.HK), SSC-H (0338.HK)
  • Australia: Caltex Australia
  • India: Oil India
  • Korea: Lotte Chem (011170.KS)
  • ASEAN: TOP (in Thailand), Chandra Asri (TIPLA JK), Pilipinas Shell

• Valuation and Investment Criteria:

  • Companies are valued using DCF for upstream and P/B vs. ROE for downstream.
  • Some stocks are highlighted for their high dividend yields and strong FCF generation.
  • The document notes that some companies are richly valued and have limited exposure to certain segments, such as ethylene.

• Risks:

  • Unexpected changes in oil prices and production volumes.
  • Policy changes affecting the energy sector.

Investment Themes and Regional Insights

• China:

  • CNOOC Ltd is highlighted for its oil leverage and dividend yield.
  • Sinopec-H is a defensive cash cow with strong FCF and dividend yield.
  • Companies like SEG and Kantons benefit from increased capex and gas demand.
  • PetroChina-H and SSC-H are least preferred due to poor returns and valuation.

• Australia:

  • Oil Search is the top pick due to its exposure to rising LNG prices.
  • Santos is favored for its leverage to oil prices and cost-cutting initiatives.

• New Zealand:

  • Meridian Energy is the top pick due to its increasing retail exposure and higher dividends.

• Japan:

  • INPEX Corp is a preferred pick due to the commissioning of the Ichthys mega project in 2018.

• India:

  • Reliance Industries is favored due to its end of capex cycle and strong FCF.
  • Oil India is least preferred due to lack of volume growth.

• Korea:

  • LG Chem and Kumho Petrochemical are preferred for their diversified portfolios and exposure to non-PE segments.
  • Lotte Chem is least preferred due to high exposure to the PE cycle.

• ASEAN:

  • IRPC PCL is favored for its refining exposure and utilization ramp-up.
  • Sembcorp Marine is highlighted for its leverage to offshore and marine orders.
  • TOP, Chandra Asri, and Pilipinas Shell are least preferred due to weak earnings momentum, rich valuation, and no volume growth.

Conclusion

The document outlines a strategic approach to investing in the APAC energy sector in 2018, emphasizing capital discipline, operating efficiency, and the potential for increased oil prices. It provides a comprehensive list of top and least preferred stocks across various countries and sectors, based on the expected performance and market conditions. The focus is on companies that can deliver strong returns to investors while navigating the challenges of a rebalancing oil market and evolving regulatory environments.