There’s a glimmer of hope for the rig market and recent falls in shares of Keppel and Sembcorp Marine have left them at a good entry point, DBS said in a note dated Tuesday.
“Keppel and Sembcorp Marine have given back their gains since the year started, alongside weaknesses in the broad market and oil price as well as earnings disappointment,” DBS said. “This presents a good entry point to position for strong contract flow ahead.”
DBS said earnings are lagging indicators and contract wins are key catalysts during recovery. It added that the “healthy” oil price above US$60 a barrel bodied well from project investment decisions, which should lead to crystallisation of orders for production related platforms.
It noted that Petrobras and Sete reportedly reached an agreement on the charter of four drilling rigs, likely two each from Keppel and SembMarine. DBS said the market was expecting more deliveries, four from each yard, but the settlement should remove an overhang.
“In the broader scheme of things, we see the Petrobras-Sete rig deal as another positive indicator of demand recovery,” it said.
“SembMarine remains our top pick to ride O&G recovery with its strong visible order pipeline, while Keppel is a safer bet, backed by its multipronged business strategy,” DBS said.
It set SembMarine’s target at S$2.90 and Keppel’s target at S$10.20, rating both at Buy.
SembMarine ended Wednesday up 1.49 percent at S$2.04; Keppel ended down 0.52 percent at S$7.62.