PETALING JAYA: Floating, production, storage and offloading (FPSO) services players are expected to remain the oil and gas (O&G) sector earnings driver for the year underpinned by stable oil prices and lower O&G cost structure.
UOB Kay Hian said on Monday said the data by the Energy Maritime Associate’s (EMA) fourth quarter (Q4) 17 appears to support a recovery in floating production systems (FPS) contracts, as new project sanctions could be supported by stable oil prices and a structural step-down in O&G cost structure.
According to EMA Q4 17, year-to-date (ytd) FPSO awards were higher versus 2016 levels with contract award rate to pick up from 2018. While this is positive, all these awards have been of relatively low value, the research house added.
Local players are poised to benefit as they have healthy contract tenures and gearing, it said, adding that Yinson
stands out as it has a firm contract tenure with more than seven years remaining while Bumi Armada has more than six years.
“With an improved net debt/adjusted EBITDA of less than four times on project start-ups, we note that both players remain competitive versus other global FPSO players, ‘‘ the brokerage noted.
Yinson boasts a remaining average firm contract tenure per fleet of more than seven years, skewed by the 15-year FPSO JAK. Excluding a potential termination of FPSO Allan and redeployment terms for FPSO Lam Son, the ratio would be higher, the research house said.
This compares with Bumi Armada’s more than six years and MISC’s more than five years (excluding Gumusut-Kakap FPS, MISC’s remaining firm tenure averages less than four years).
Bumi Armada’s ratio may have upside, UOB said as it has room for new deliveries and its FPSO Armada TGT1 has a high likelihood of extension from 2018.
“Our sector theme is unchanged to invest in companies with visibility for earnings upgrades and do not depend on Petronas work orders.
“Hence, we advocate taking profit on stocks that had a valuation run-up on oil price and potential contract news flow, but are not benefitting from earnings re-rating.
“Fundamentally, FPSO players remain the clear sector earnings driver in 2017, “ UPB added.
In its latest report, EMA identifies several FPS bids that are in the final design stage, which could be awarded in the near term.
One of the key mega bids is the KG-DWN-98/2 by ONGC, for which prominent FPSO global players are bidding. Bumi Armada, the only local listed player with no new deliveries, is potentially a leading bidder for this contract.
This is because it has an established FPSO track record in India, and it has established a JV company with Shapoorji (its long-term partner) to bid.
Management guided it is exploring other options such as infrastructure funds/perpetual securities, or asset disposal/ stake sales, over choosing a direct equity funding/rights issue, the research house noted.
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