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Regional Oil & Gas Summary - 20 May 2014

Core Content Overview

The document provides a summary of the oil and gas market dynamics and investment outlook for various companies in Asia, India, and other regions as of 19 May 2014. It includes updates on market prices, news headlines, and analyst reports for key players in the sector, highlighting performance, upcoming projects, and valuation metrics.

Key Market Price Movements

• WTI increased by 0.6% overnight.
• Henry Hub rose by 1.3%.
• LNG Northeast Asia CFR remained flat at 0.0% for the day but increased by 4.0% over the week and decreased by 3.7% over the month.
• Asia naphtha spread reached a two-month low at USD14/tonne in backwardation.

News Headlines

China

• Putin's Shanghai trip is expected to accelerate a gas deal with Gazprom, with Gazprom shares up 16% in nine days.
• China's refining throughput dropped by 5.58% in April due to refinery turnarounds.
• China's gasoil output fell by 4.78% in April, though the gasoil output ratio increased by 0.3% to 35.18%.
• China Cosco delivered a pipelay vessel to SapuraKencana, which is capable of operating in shallow waters up to 200 meters.
• PV Gas in Vietnam offered to buy LPG for delivery between 20 June and 10 July.
• Asia naphtha spread reached a two-month low, signaling weak demand and potential market volatility.

India

• Modi's election victory is anticipated to boost the O&G sector by increasing gas prices, which could lead to higher E&P investments.
• RAPID has been approved, indicating long-term growth potential for the sector.

Other Markets

• GDF Suez signed a 20-year LNG supply contract with Tohoku Electric from its US Cameron LNG project, set to start in 2018.
• CNOOC LTD reported a strong performance with a 1Q14 net profit of MYR53m, tracking expectations and on track for a stronger 2H14.

Analyst Reports and Investment Outlook

UMW Oil & Gas Corporation

• Rating: BUY
• Target Price: MYR5.15
• Performance: 1Q14 net profit matched expectations, with more contract announcements expected in 2014.

Dialog Group

• Rating: BUY
• Target Price: MYR3.90
• Performance: 9MFY14 net profit of MYR164m covered 67% / 68% of full year forecasts. Earnings forecasts were lowered by 8% / 4% / 4%, but long-term prospects remain positive.

Perisai Petroleum

• Rating: BUY
• Target Price: MYR1.76
• Performance: 1Q14 net loss of MYR3m was within estimates but below consensus. Earnings are expected to improve in 2H14 due to the maiden contribution from the JU rig, Pacific 101.

SapuraKencana

• Rating: BUY
• Target Price: MYR5.30
• Performance: Secured 5 contracts worth USD312m, showing strong contract momentum and a catalyst with the GSA.

Nam Cheong Ltd

• Rating: BUY
• Target Price: SGD0.41
• Performance: 1Q14 PATMI of MYR71.1m (+98.7 YoY, +0.9% QoQ), driven by more vessel deliveries. Shipbuilding margins are expected to meet the high end of 15-20% guidance.

Petron Corp

• Rating: BUY
• Target Price: PHP15.90
• Performance: 1Q14 net income reached PHP2.23b, accounting for 29% of full-year forecast. RMP-2 is 98% complete and on track for 4Q14 operations.

Mermaid Maritime

• Rating: BUY
• Target Price: SGD0.59
• Performance: 2QFY9/14 PATMI dropped by 60.7% QoQ, but management expects recovery in 2H. Maintain BUY with a revised target price.

MY Oil & Gas

• Key Takeaway: The O&G market is expected to remain robust over the next 3 years with opportunities across the value chain.
• Sector Outlook: Companies with strong financials will benefit, but many may be affected by Shariah compliance.

Valuation Comparison

Asian Oil & Gas Companies (Selected)

Asian Oil Service Companies (Selected)

Summary

The oil and gas market in Asia and other regions showed mixed performance, with WTI and Henry Hub prices rising slightly, while the LNG Northeast Asia CFR remained flat. China's refining and gasoil output declined in April, but the gasoil output ratio increased. Political developments, such as Putin's Shanghai trip and Modi's election victory, are seen as catalysts for future deals and investments. SapuraKencana received a new pipelay vessel, and GDF Suez signed a major LNG contract. Analysts reiterate BUY ratings for several companies, citing potential for growth and recovery, while others face challenges like lower-than-expected earnings or weak subsea utilisation. Valuation data highlights varying P/E and EV/EBITDA multiples, with some companies showing strong fundamentals and others under pressure due to market conditions.