Diversified Portfolio, Hear From The Expertise 
| Written by Kang Wan Chern, the edge singapore |
| Monday, 06 December 2010 15:54 |
Janice Chua, senior vice-president and head of research at DBS Vickers, tries to play down the fact that she has won numerous awards for recommending the right stocks and making accurate earnings forecasts during the year, and that the 15 analysts she leads have swept multiple awards for picking the best-performing stocks on the Singapore Exchange. However, she finally admits that clinching the titles for best local brokerage and highest-ranked Asia-based house during the year was no walk in the park.
“It’s not easy being an analyst,” Chua tells The Edge Singapore during a recent interview. “It’s not simply sitting at your desk all day. We regularly make site visits and chat with sources along the supply chain for more accurate information. Factors like the weather also come into play in providing reliable recommendations.” For instance, when Hurricane Katrina slammed into the Gulf of Mexico, Chua and her team spent days poring over weather forecast reports in efforts to estimate the risk of damage to oil rigs located there, because the additional repair work would have an impact on rig builder Keppel Corp, which operates several fabrication yards in the US.
Appointed to her current role in 2006 after 14 years’ experience covering the offshore and marine (O&M), industrials, financials, construction and automotive sectors, Chua’s job is also about selling ideas that work. “You have to keep coming up with new investing ideas for clients to make money,” she says. “Sometimes, it’s not just about picking individual stocks, but bundling several stocks under a suitable theme to appeal to clients.”
As 2010 draws to a close, Chua recently released one such strategy report dated Nov 22, highlighting several stocks that could outperform the market during the quiet weeks before Christmas. “With the weakness in the market and current tensions between North and South Korea, this is a good buying opportunity to pick sectors that could rebound during the expected rally in January, when fund managers come back from their holidays and the market is usually packed with trading ideas and activity,” she says.
The Straits Times Index (STI) has fallen about 2% since tensions broke out between Pyongyang and Seoul in late November, although Chua believes the weakness will be shortlived. On Dec 2, the index closed at 3,197.96 points. “As the market consolidates during the seasonal lull, we expect three sectors to provide news flow and near-term catalysts for outperfor mance: O&M; hospitality and commodity; and plantation stocks,” says Chua, who sees the STI hitting a high of 3,500 in 1Q2011.
BULLSH ON RIG BUILDERS
In the O&M sector, Chua is bullish on the two Singapore rig builders — Keppel and Sembcorp Marine. “We are looking for sectors that can rebound in 1Q2011 and the rig builders were an easy call, as we have been waiting for a big splash of order wins from Petrobras for a while now,” says Chua. “These contracts have been delayed for more than a year, and we are finally seeing Petrobras opening up the commercial bids, which is positive news for the rig builders’ share prices.”
On Nov 29, Brazilian national oil company Petrobras officially announced commercial bids from seven rig yards vying for contracts to build the 28 drillships it needs to develop its deepwater subsalt oilfields located in the Santos Basin, off the coast of Rio de Janeiro. The building contracts will be awarded in four packages of seven rigs each.
Brazilian shipyard Estaleiro Atlantico Sul (EAS) — a consortium formed by South Korea’s Samsung Heavy Industries and local construction giants Queiroz Galvao and Camargo Correa — submitted the lowest bid of US$4.65 billion ($6.1 billion), outbidding six other groups — including Keppel and Sembmarine — for the first batch of seven drillships. Chua expects EAS to be awarded the contract.
Petrobras is currently negotiating the price of the remaining batches with Keppel, Sembmarine and a third yard owned by the Alusa- Galvao consortium, comprising Brazilian engineering conglomerate Galvao Engenharia and South Korea’s Sungdong Shipbuilding and Marine Engineering. Interestingly, Cosco Corp is the consortium’s international technical consultant.
Meanwhile, Chua expects a close tussle between the three yards for the remaining drillship contracts. The tender is expected to close by year-end. Keppel is proposing to build the seven drillships at a total price of US$5.172 billion, marginally outbidding Sembmarine’s offer of US$5.178 billion.
Keppel and Sembmarine are also bidding to build a second package of oil rigs for Petrobras, where EAS and Keppel are in the lead for at least one semisubmersible each. Under the second package, EAS was again the lowest bidder, with a price of US$719 million for a drillship, while Keppel came in second, with a bid of US$749 million to build a semi submersible type rig, a mere 4% ahead of EAS. Sembmarine’s semisub bid of US$870 million was third, but 21% above of EAS’ bid, “possibly pricing it out of the competition”, Chua says.
She favours Keppel over Sembmarine, believing that the former stands a higher chance of winning Petrorbras orders, based on its ability to price the rigs at a lower level. She predicts that Keppel could end up winning up to 11 contracts — including the set of seven drillships — amounting to a total contract value of between US$3.5 billion and US$8 billion.
In comparison, “the chance of Sembmarine winning the semisubmersible orders is slim, considering their price is 21% and 16% higher than EAS’s and Keppel’s bids, respectively,” Chua points out. “As for the seven drillships, Sembmarine stands a fair chance of winning. We maintain our order win assumption of US$5.1 billion for seven Petrobras drillships for Sembmarine.” However, should it lose the Petrobras bid, the impact on Sembmarine’s FY2012 forecast earnings “could be up to 5%, reducing long-term visibility of its order book”.
Nevertheless, Chua is still calling a “buy” on Sembmarine, valuing the stock at $5.48 apiece, which represents an 11.6% upside. She is recommending a “buy” on Keppel, with a price target of $12.20 each — giving it an upside of 12.4% — and recently raised her earnings forecast on the stock by 2% and 3% in FY2011 and FY2012, respectively. Indeed, even if both Keppel and Sembmarine end up not winning any orders from Petrobras, the ongoing jackup rig replacement cycle as well as lower newbuild prices should keep the orders flowing in. “Oil majors have more incentives to book yard space now as newbuild prices are still below peak levels,” she says. “We see the upward cycle for newbuild jack-up rigs continuing, as oil majors are spending on equipment again in view of the high oil price.”
MORE UPSIDE FOR PLANTATION STOCKS
With the greenback sliding and inflation on the rise in Asia, Chua is also expecting to see a strong rebound in crude palm oil (CPO) prices in 1Q2011. “The fact that we are entering into an inflationary boom cycle and a period of high liquidity means that commodities like palm oil will be going up, followed by pure upstream oil palm plantation players such as Indo food Agri Resources and First Resources,” says Chua.
On the supply side, factors such as the seasonal drop in FFB (fresh fruit bunch) yields in January/February 2011 and potentially lower soybean yields due to climate disruptions caused by La Niña could fuel a further rally in CPO prices. Meanwhile, demand from China will remain strong. Continued US dollar weakness and weather disruptions this year should also boost cotton, wheat, sugar, and rubber prices next year, although supplies are likely to recover in 2H2011, Chua believes.
She has “buy” calls on Indofood Agri and First Resources, valuing the stocks at $3.05 and $1.55 apiece, respectively. “We favour upstream plantation counters to capitalise on strong soft-commodity prices... Indofood Agri’s earnings growth remains one of the highest in the sector over the next three years, due to increased oil palm maturity, as well as initial contribution from sugar and resilient rubber and seeds,” writes Chua in her report.
Meanwhile, she has downgraded Wilmar International to a “hold”. “As an integrated supply chain manager, Wilmar owns plantations but it also has the plants and factories, so higher CPO prices will ultimately result in lower margins for Wilmar,” says Chua. Indeed, Wilmar recently disappointed the market with a 60% drop in 3Q2011 earnings, hit by margins compression and trading losses. DBS has since cut its earnings estimates by 20.7% and 11.8% for FY2010 and FY2011, respectively.
However, Chua has “buy” calls on the other two commodities supply chain managers, Noble Group and Olam International, whose share prices are “usually driven by share placements and fundraising for acquisitions”.
PLAYGROUND FOR TOURISTS
Chua expects a huge surge of tourists into the city-state, drawn by the two integrated resorts, as the year draws to an end. “This year, we have seen major growth in all the tourism-related stocks,” she says. “Growth in this sector will continue in the year ahead, but it will be more moderate compared with this year.”
Chua expects good 4Q2010 results from Genting Singapore owing to the rise in the number of holidaymakers during the December period, saying the new junkets expected next year “should boost the share price”. She has a “buy” call on Genting and believes the stock could hit $2.70 within the next 12 months, representing a further upside of about 29%. She is also maintaining her “buy” recommendations on CDL Hospitality Trusts, Singapore Airlines and UOL. Meanwhile, DBS has also revised its earnings estimates for ComfortDelGro up by 4% to 6% in both FY2010 and FY2011, on the back of an expanded taxi fleet in Singapore and overseas.
HAPPY READING GUYS 
Analysis: Drilling Contractors Bullish on Ultra-Deepwater Outlook
Rigzone Staff | Monday, December 06, 2010
Drilling rig contractors are bullish on the long-term outlook for the global ultra-deepwater drilling sector, with rig demand beginning to recover following the global financial crisis of 2008 and ultra-deepwater rig demand appearing outside the "Golden Triangle" markets of West Africa, Brazil and the U.S. Gulf of Mexico.
The number of deepwater discoveries has picked up again as the global financial recovery and sustainable oil prices have prompted national oil companies, majors and independents to begin spending again on exploration. Drilling companies are finding that operators are opting for high-specification rigs, including rigs with dynamic positioning (DP) capabilities to meet more challenging geological plays as well as increased safety and operational standards.
Pride International President and CEO Lou Raspino told attendees at the inaugural Jefferies 2010 Global Energy Conference in Houston last week that he sees potential for its ultra-deepwater drillship Deep Ocean Molokai, which is scheduled for delivery in December 2011 and is not yet under contract, not only in the traditional Golden Triangle markets of Brazil and West Africa, but emerging deepwater plays such as offshore India, New Zealand, Malaysia, Indonesia, eastern Canada and eastern Africa.
The company also has favorable contracts for its other new drillships, including Deep Ocean Ascension and Deep Ocean Clarion, which were delivered this year and are under contract to BP at day rates above $500,000/day. The newbuild drillship Deep Ocean Mendocino will be delivered in January 2011, and is under contract to Petrobras at a day rate just above the $500,000 mark.
Fleet utilization remains effectively full through 2010 and looks tight for 2011 for ultra-deepwater rigs capable of drilling in more than 6,999 feet of water, with Pride seeing improved client demand and tenders and pre-tenders higher in this year's third quarter. Day rates for the sector remain above the $400,000 mark, Raspino noted. He estimates that 83 percent of the company's floating rig fleet will be contracted for deepwater work in 2011 and that deepwater work will comprise 75 percent of its revenue in 2013.
The company already has a significant presence in Brazil and Angola, with more than half of its revenues of $1,059 million for the nine months ended Sept. 30, 2010 coming from its Brazilian operations. Raspino anticipates seeing more demand for ultra-deepwater rigs from Petrobras, with shortages forecast in 2011 and 2012, even with Petrobras' recent announcement that it would move forward with plans to construct 28 drilling rigs to tackle its pre-salt offshore reserves. "The amount of drilling activity at Tupi and other areas will require more rigs than Brazil can possibly build," Raspino said.
Seadrill CEO and President Alf C. Thorkildsen said during company's third quarter 2010 earnings call that he is convinced Brazil will build rigs, but not that it will order up to 28 rigs, and estimates that the first rig would come out in 2016 due to lack of shipyards in Brazil experienced in this type of construction. Thorkildsen noted that many of these shipyards will need upgrades to tackle these projects.
"But I am of the opinion that the market in Brazil will absorb that, and also to a large extent some of the available capacity in the world and take up some of that," Thorkildsen said. Seadrill earlier this year said market demand prompted it to order two ultra-deepwater drillships from Samsung Shipyard at a US$600 million a piece.
Noble Corporation also expects to see rig demand recovery over the next several years, with progressive growth toward the end of the decade. The company sees major areas of growth in Brazil and West Africa, with floating rig demand strong in Norway as well. While deepwater and mid-water rig rates will remain under pressure in the near-term, the company noted that ultra-deepwater day rates are strong enough to encourage newbuild rig construction.
Noble also has been renewing its fleet since 2007, adding four semisubmersibles capable of drilling in 10,000 feet or greater, including three DP semis, and four DP drillships with 10,000 feet or greater drilling capacity. These additions do not include Noble's Frontier fleet acquisition in July, which gave the company a 5,000-foot DP drillship, two moored drillships, including one Arctic-class drillship, a moored semi and an DP FPSO, said Thomas L. Mitchell, senior vice president and chief financial officer at Noble, during a presentation at the Jefferies conference
While the future of deepwater drilling activity in U.S. Gulf of Mexico remains uncertain, operators face a wide range of possible scenarios, from less onerous regulations that allow smaller operators to still participate to stringent new rules that could result in a major exodus from the U.S. Gulf, creating a "Dead Sea", according to Noble.
Other drilling contractors such as ENSCO PLC also are investing in ultra-deepwater rigs. ENSCO is investing more than $3 billion in its ENSCO 8500 series of seven newbuild ultra-deepwater rigs. Last month, Athens-based Dryships Inc. entered an agreement with Samsung Shipyard in South Korea for the option to construct up to four ultra-deepwater drillships, which would be delivered during 2013 and 2014, at a cost of around $600 million each. "The ultra-deepwater market has turned a corner and we believe that this is the bottom of the newbuilding price cycle," said DryShips Chairman and CEO George Economou. "We see strong demand for state of the art ultra-deepwater drillships and are confident of customer demand for these drillships."
According to RigLogix, 30 drillships rated for drilling in water depths greater than 9,800 feet have been delivered this year or are scheduled for delivery through 2013, while 24 semis capable of drilling in greater than 2,461 feet of water will be delivered through to 2012. Thirteen of the drillships scheduled for delivery currently are without contract, while 10 of the semis set for delivery do not have contracts at this time. Petrobras has 17 of the newbuild rigs set for delivery through 2013 already under contract.
Happy reading guys / -
Petrobras cuts two from rig bids
Petrobras has disqualified the two highest bidding shipyards in the race to supply the Brazilian oil giant with up to 28 ultra-deepwater rigs.
Gareth Chetwynd 06 December 2010 12:31 GMT
In the most important category, offering contracts to supply Petrobras with seven drillships per yard, Estaleiro EISA Alagoas, and Andrade Gutierrez were disqualified, with their respective prices of $5.49 million and $5.77 million rated “evidently excessive” in a Petrobras communique to all bidders.
This leaves five bids still in the running, with fifth-placed Odebrecht-OAS-UTC ($5.31 million), Jurong Shipyard ($5.18 million), Keppel Fels ($5.17 million), Alusa-Galvao ($4.68 milllion and Estaleiro Atlantico Sul ($4.65 million).
The commercial “qualification” of five bids gave some observers the impression that Petrobras may accept more offers than was first thought when prices were opened in November.
The communique also stated that representatives of the Alusa-Galvao consortium had been called into meetings with Petrobras to clarify the commercial aspects of their proposal.
This consortium, inexperienced in the offshore sector, also faced some of the most searching questions regarding the technical and commercial aspects of its shipyard project, which requires intensive dredging in the Barra Furado region of Rio state.
Many industry insiders argue that the Odebrecht-led consortium, which includes a new shipyard project in the state of Bahia , enjoys the strongest political connections.
The latest communique led to some predictions that Petrobras may be likely to exclude the Alusa-Galvao bid and award contracts to the remaining four groups.
For more, read this week’s edition of Upstream newspaper on Friday.
Published: 06 December 2010 12:31 GMT | Last updated: 06 December 2010 12:33 GMT
Post Reply
Positive outlook: S. Iswaran, Singapore's senior minister for trade, industry and education
Petrobras till this date, has not concluded the rigs offer to who. It state the package offer seems that smars was of the highest bids. Analysts read the news and rule out smars and favor kpc. To what i heard, suppose to be finalised in year end.
