UOB Kay Hian Research maintains Overweight on O&G

KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining its
Overweight outlook on the oil and gas sector, particularly in the rig
subsector, with listed rig owner Perisai Petroleum and SapuraKencana
Petroleum among its favourites.
"Brisk demand and potentially
rising charter rates could allow rig owners to positively surprise the
market," it said on Tuesday.
The research house said among the
listed rig owners - Perisai, SapuraKencana and UMW - it is maintaining
its BUY calls on Perisai (TP: RM1.59 based on 12 times 2013F PE and the
NPV from a prospective stake in FPSO Kamelia) and SapuraKencana (TP:
RM2.80 based on 17 times FY14F PE).
UOB Kay Hian Research said
Perisai in particular provides a significant upside to our target
price, given its high likelihood of securing a contract for its jack-up
rig (taking delivery in July 14) and to secure partial ownership of a
FPSO vessel that shares similar demand dynamics and attractive mid-teen
Internal Rate of Return (IRR) as rigs.
The research house said
it had hosted a luncheon for private company Gryphon, an aggressive
accumulator of mobile offshore production unit (MOPU) rigs that is
benefitting from thriving E&P activities in the O&G sector, to
provide its outlook for the Malaysian rig market.
It said
Gryphon expected especially brisk demand the sparsely available
Malaysian-flagged rigs driven by: a) rising rig count in Malaysian
waters, as Malaysia intensified its E&P activities to boost oil
production, b) rising substitution effect as Malaysian flagged rigs
replace some foreign-flagged rigs (on charter expiry).
Gryphon
note that the domestic charter rate for rigs has recently firmed up,
and expects rates to inch up over time, which point to potentially
rising margins for rig owners.
"High extension chances for
Perisai's MOPU charter contract for natural gas production at the Bekok
production area. Recall that Perisai's MOPU is contracted out to
Petronas at a daily charter rate of US$69,000 a day under a '2+1+1'
contract that expires end-2013.
"Malaysia continues to face a
significant shortage of domestic gas supply, and industry observers
expect delays to Petronas' plan to rehabilitate a production platform
which caught fire in Bekok-C, which augurs well for Perisai (which was
mobilised to address the production shortfall in Bekok). The rig
accounts for 50% of Perisai's 2012 EBIT," said UOB Kay Hian Research.