Excerpts from UOB KH report

Small/Mid Cap Strategy
– Singapore Beneficiaries Of Higher Oil Prices

The recent increase in crude oil prices, due to declining global oil inventories and better-than-expected global oil demand with the re-opening of economies after the COVID-19 lockdowns, has triggered renewed interest in the oil & gas sector.

OPEC, together with Russia, has also helped by agreeing to a slow unwinding of supply curbs.

The immediate beneficiaries in Singapore are upstream oil producers such as RH Petrogas and Rex International, in our view.

550 oilrig

Rising crude oil prices have triggered renewed interest in the O&G sector. We highlight SGX-listed stocks which saw a jump in interest in tandem with the higher oil prices, which in our view was triggered by:

a) the weaker US$;
b) slower-than-expected resumption of global oil production;
c) drawdown of crude inventories; and
d) expectations for higher energy demand as economies recover, underpinned by successful COVID-19 vaccine deployment.

The immediate beneficiaries are RH Petrogas (RHP) and Rex International as they are upstream oil producers. RHP delivered record earnings of US$3.4m (+466% yoy) in 1Q21.

This earnings trajectory appears sustainable, as the strong 1Q21 was driven by:

a) a strong recovery in oil prices;
b) reduced production costs, implemented since mid-20 due to COVID19 (US$27.5/bbl in 2020 vs US$31.5/bbl in 2019); and
c) renewal of a 20-year production sharing contract (PSC) for one of its oil fields in Indonesia.

UOB smallcaps6.21*last updated more than six months agoRHP trades at 7x 2021F PE, annualising 1Q21 EPS of US$0.46cts/share (S$0.62cts/share).

SMM, KEP, CSE Global and other O&M players could benefit from positive market sentiment but much depends on whether oil prices are on a structural upcycle and not on spot oil prices.

Green shoots are emerging. Our Mar 21 oil & gas sector report indicated that the worst may be over for the offshore marine industry, supported by the improving trends in rig utilisation and day rates.

Oil & gas project commitments for 2021-25 are forecast to increase 66% vs the prior five-year period. In the past six months, the Brent forward oil price for delivery in end-25 has risen 23% from US$48/bbl to US$59/bbl and is thus more supportive of oil industry capex.

Oil prices are encouraging. The forward oil and gas price view plays a major role as to whether projects are green-lighted or not.

With the Brent oil price having traded at US$55- 80/bbl in the past three years, and if it continues to average at a steady range of US$55- 60/bbl, most oil projects would generate decent IRR in our view.

Steady growth in consumption support elevated crude prices. According to the US Energy Information Administration (EIA), world energy consumption for 2021 is estimated to rise 6.1%, outpacing expected global production of 2.8% and supporting the 56.4% increase in the forecasted Brent crude price.

For 2022, consumption is expected to grow 3.5% yoy to 101.32mmbpd, compared with production of 101.82mmbpd (+5.1% yoy), as producers are expected to end the global oil inventory draws that have occurred for much of 2020 and leading to relatively balanced global oil markets in 2H21.

Full report here. 

Share Prices

Counter NameLastChange
AEM Holdings3.910-0.060
Avi-Tech Electronics0.400-0.005
BH Global0.295-
China Sunsine0.5100.005
Food Empire0.840-0.010
Fortress Minerals0.620-0.010
Golden Energy0.385-0.005
GSS Energy0.0700.001
ISDN Holdings0.765-0.015
IX Biopharma0.230-
KSH Holdings0.365-
Leader Env0.085-0.001
Medtecs Intl0.8050.005
Moya Asia0.0710.002
Nordic Group0.315-
Oxley Holdings0.2300.005
REX International0.210-
Southern Alliance Mining0.990-0.010
Sri Trang Agro1.570-
Straco Corp.0.5200.005
Sunpower Group0.670-0.010
The Trendlines0.1020.002
UG Healthcare0.565-
Uni-Asia Group1.0000.030
Wilmar Intl4.350-0.030
Yangzijiang Shipbldg1.370-0.010
Yinda Infocomm0.230-

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