Singapore rig makers well-anchored in choppy market
Singapore-based Keppel and SembMarine, whose stocks have fallen this year amid the market turmoil, have benefited from a boom in oil exploration, securing nearly 60 per cent of the world's rig orders to keep their yards busy till 2012.
Oil prices have eased from a high of more than $147 a barrel in July to below $109, but analysts and fund managers do not expect the retreat to hurt rig demand.
"We still like the oil rig industry," said Pruksa Iamthongthong, who helps manage over $35 billion in equities at Aberdeen Asset Management Asia. "Fundamentals are still very strong because of the constraints on the supply side and also additional demand due to the age of [existing] oil rigs."
The growth in orders has not come at the expense of margins, which are rising at SembMarine and steady at Keppel as they hedge forex risks and pass on the higher cost of steel and energy to customers, said Citigroup's Singapore research head Chua Hak Bin.
For instance, Keppel said last month it would build a deepwater semisubmersible rig for ENSCO International worth $560 million. The same model cost $537 million in June and $512 million in May when Keppel signed similar deals with ENSCO.
Keppel has won $5.2 billion worth of orders this year while SembMarine has clinched $4.4 billion, putting them way ahead of competitors such as Daewoo Shipbuilding and Kawasaki Heavy Industries, which are more focused on ship building.
Chua recommends buying rig-makers for their earnings visibility in an equities bear market that is about two-thirds of the way through, judging by the length of previous slumps such as the 2001 dotcom crash and the 1997/98 Asian crisis.
According to Reuters Knowledge, 14 of 17 analysts have "buy" or "overweight" calls on Keppel, while 15 of 18 recommend buying SembMarine.