industry insights regional oil and gas industry insights regional oil and gas page 3 what is up with...

ed: TH/ sa: JC/YM, PY, CS

DBS Group Research . Equity

22 Apr 2020

Industry Insights

Regional Oil and Gas Refer to important disclosures at the end of this report

Oil prices in unknown territory, how to position? • As WTI tests “negative” levels, we reiterate our views of continued downward

pressure on oil prices in 2Q20

• Brent could test unchartered waters as well in coming days or weeks as storage

levels worldwide under stress

• We continue to expect strong oil price recovery towards end of 2020, but this will

depend on timing of easing of lockdowns currently in force worldwide, as well as

level of compliance to previously announced production cuts by OPEC+ members

• Upstream and integrated oils share prices faring better than recent oil price

movements, look for pullback in near term for better entry opportunities

Analyst

Suvro SARKAR +65 81893144

[email protected]

Pei Hwa HO +65 6682 3714

[email protected]

Jason SUM +65 66823711

[email protected]

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights

Regional Oil and Gas

Contents

1. Oil market developments Page 03

2. Oil price outlook Page 07

3. Positioning in oil & gas stocks Page 14

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


What is up with “negative” oil prices?

WTI futures contracts (front month to 12th month)

Source: Bloomberg Finance L.P., DBS Bank

• Front month WTI futures contract went negative for the first time in history before it was set to expire on 21st April, as no trader was

willing to take physical delivery of oil at Cushing, Oklahoma without access to storage, and cash settlement was not an option

• Surge in liquidity in oil ETFs like USO also contributed to this anomaly

• WTI has since rolled over to June futures, which is currently around US$12/bbl, having fallen from around US$20/bbl the previous day,

and could trend towards zero in coming days or weeks as well owing to the storage issue

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

1 2 3 4 5 6 7 8 9 10 11 12

US$/bbl

WTI futures curve as of 20th April 2020

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1 2 3 4 5 6 7 8 9 10 11 12

US$/bbl

WTI futures curve as of 22nd April 2020

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


How much more storage capacity left?

Estimates of remaining global oil storage capacity by industry consultants/ agencies

Rystad Energy Around 1,600mmbbls

Energy Aspects Around 1,026mmbbls

IHS Markit Between 1,400-1,500mmbbls

International Energy Agency (IEA) Between 1,465-1,620mmbbls

Bloomberg Intelligence Around 1,608mmbbls

Note: As of end March 2020

Source: Respective companies, agencies

• On consensus, it appears around 1.5 billion barrels of oil storage capacity available globally at the start of April 2020

• If gap between demand and supply is say, 20mmbls, we would need to store 600 million barrels in a month

• Dire situation for storage can be expected globally by the end of May, unless demand starts to improve

• The above storage number can be misleading as well, as lot of factors need to be considered like

o Logistical constraints of accessing land-locked storage

o Working storage capacity cannot be 100% to ensure space for transfers, blending etc

o Crudes of different grades need to be kept separately

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


More downward pressure to oil prices?

• Brent crude fell by more than 20% again on Tuesday, 3rd time this has happened this year

• Apart from the three times in 2020, Brent crude had fallen by 20% or more in one trading session only once previously in history,

demonstrating the extreme volatility so far this year

• WTI has rolled over to June futures, which are trading at around US$12/bbl

• The coming weeks are surely going to be interesting for the oil markets

• International storage is more readily available than US storage at this point, but for how long?

• One might wonder that if traders cannot access US storage for physical crude deliveries in May, how will they find storage for June

deliveries?

• Hence, expect continued pressure on WTI and Brent in coming weeks, though negative oil might be an anomaly reserved for WTI

benchmark

• WTI is more at risk owing to single physical delivery location of Cushing, Oklahoma underlying all futures contracts

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


The problem at Cushing

Storage trends at Cushing, Oklahoma


0

10

20

30

40

50

60

70

80

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

mm bbls• Effective peak capacity is

estimated at 78mmbbls

• At of 10th April, storage levels

have surged to 55mmbbls from

36mmbbls at the start of the year

• Current estimates point to

60mmbbls of storage, which

implies 77% utilisation levels

• Remaining storage may have

been booked already and not

accessible to traders currently

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Oil Price Forecasts Base Case Scenario

Oil price forecast

Source: Bloomberg Finance L.P., DBS Bank forecasts

-50

0

50

100

150

200

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

Jan-1

4

Jul-14

Jan-1

5

Jul-15

Jan-1

6

Jul-16

Jan-1

7

Jul-17

Jan-1

8

Jul-18

Jan-1

9

Jul-19

Jan-2

0

US$ per bbl

Brent WTI

Brent hit a high of US$115/bbl on 19-Jun-14 before collapsing

Brent rebounded in 4M19 but retreated due to demand concerns as US-China trade tensions escalated

DBS forecast for Brent:

2020 average – US$37-42/bbl2021 average – US$55-60/bbl

Recovery derailed since October 2018 as OPEC boosted supplies and global economic worries grew

Brent recently surged close to US$70/bbl on the back of US-Iran tensions, but has since crashed on COVID-19 demand disruption fears

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Oil Price Quarterly Forecasts

Oil price forecast by quarter (2020/21)

(US$ per barrel) 1Q20F 2Q20F 3Q20F 4Q20F 1Q21F 2Q21F 3Q21F 4Q21F

Average Brent crude oil price 47.5 23.0 36.5 52.0 52.5 54.5 58.5 60.5

Average WTI crude oil price 42.0 19.0 31.5 47.0 47.5 49.5 53.5 55.5

Source: DBS Bank forecasts

• After a strong start to the year amidst heightened US-Iran tensions and other geopolitical flare ups, oil prices have retreated more than

70% from early 2020 peak

• Oil prices expected to remain subdued in near term as global demand is deeply impacted by COVID-19 outbreak in 1H-2020

• We have lowered our 2020 global oil demand growth assumption to negative 11.0mmbpd; 2Q20 expected to be the worst in terms of

demand, followed by 3Q20

• OPEC+ decision to cut production by ~10mmbpd in May/ June, followed by ~8mmbpd in 2H-2020 and ~6mmbpd in 2021 should help

Brent crude oil prices recover by end-2020/ early 2021 under base case scenario of lockdowns starting to ease from end-2Q20 onwards

• If we look at a worse-case scenario, where lockdowns only begin to ease further on in 3Q20, a more conservative forecast would see

us exiting 2020 at around US$40/bbl and an average of US$40-45/bbl in 2021, still considerable upside from current levels

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Further production cuts by OPEC will help market

OPEC production has fallen considerably and will take another sharp hit from May onwards

Source: Bloomberg Finance L.P.

• OPEC production is down almost

4.0mmbpd from Oct 2018 peak

• About 1.1mmbpd reduction from

Iran, 0.5mmbpd from Venezuela,

1.0mmbpd at Libya and

1.0mmbpd cut from Saudi

• New OPEC+ production cuts will

stay in place till April 2022, taking

a long term view on global

demand and inventories

• Compliance to these production

cuts will be crucial, likely more

difficult to enforce than what we

have seen in the past

25

26

27

28

29

30

31

32

33

Jan

-14

Ap

r-1

4

Jul-1

4

Oct

-14

Jan

-15

Ap

r-1

5

Jul-1

5

Oct

-15

Jan

-16

Ap

r-1

6

Jul-1

6

Oct

-16

Jan

-17

Ap

r-1

7

Jul-1

7

Oct

-17

Jan

-18

Ap

r-1

8

Jul-1

8

Oct

-18

Jan

-19

Ap

r-1

9

Jul-1

9

Oct

-19

Jan

-20

mmbpd

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


US production growth will slow down sharply over time as rig counts fall rapidly

US crude oil production growth resumed in 2H19, but rig counts continued to fall

Source: Bloomberg Finance L.P.

• After taking a breather in 1H19 owing to infrastructure constraints in the Permian, US production resumed growth in 2H19 and

exited 2019 at around 13.0mmbpd production level.

• But a fall in rig counts, depletion of DUCs and muted capex plans in 2020 point to sharp decline in US oil production on average in

2020/21.

• US total rig count is down 34% or down by 73 rigs just in the last 5 weeks and will probably continue to decline in the coming

weeks to months. US shale production is likely to fall by at least 3.0mmbpd from current levels by 2021 timeline.

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

mmbpd

-120

-100

-80

-60

-40

-20

0

20

40

60

0

500

1000

1500

2000

2500

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

Land Offshore w-o-w chg

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Severe inventory buildup expected in 2020, US and world could be running out of storage

US crude oil inventories has been building fast over the last three weeks

Source: Bloomberg Finance L.P., DBS Bank forecasts

• US inventory levels have

started to increase significantly

in last 3 weeks, adding almost

50mmbbls in just 3 weeks

• YTD in 2020, US inventories

up by 74mmbbls to

504mmbbls

• Rest of 2020 likely to see

massive build up in inventories

and surpass all previous highs

• With OPEC+ cuts in place till

2022, inventory drawdowns

likely in 2021 timeframe

200

250

300

350

400

450

500

550

600

Jan

-20

13

Jul-

20

13

Jan

-20

14

Jul-

20

14

Jan

-20

15

Jul-

20

15

Jan

-20

16

Jul-

20

16

Jan

-20

17

Jul-

20

17

Jan

-20

18

Jul-

20

18

Jan

-20

19

Jul-

20

19

Jan

-20

20

mmbbls

US Crude Inventory (mmbbls) (LHS)

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Huge gap between demand and supply in 2020/21

Global oil demand/supply & inventory forecast – DBS Supply-demand balance out of whack in near term

Supply Growth

(mmbpd)

Demand Growth

(mmbpd)

Inventory Build

(mmbpd)

2014 2.5 1.4 1.1

2015 2.1 1.4 1.8

2016 0.4 1.4 0.8

2017 0.8 1.4 0.2

2018 1.7 1.3 0.6

2019E 0.0 0.8 -0.2

2020F -7.0 -11.0 3.8

2021F -2.0 7.0 -5.2

Source: US EIA, DBS Bank forecasts

• Huge demand-supply mismatch in 2020, but could be reversed to an extent in 2021 if OPEC+ cuts are complied with

• Oil demand not expected to recover to pre-COVID levels even in 2021; structural changes in oil demand could be in play as well in the

medium to long term as a result of the virus outbreak

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

1Q

13

3Q

13

1Q

14

3Q

14

1Q

15

3Q

15

1Q

16

3Q

16

1Q

17

3Q

17

1Q

18

3Q

18

1Q

19

3Q

19

1Q

20

F

3Q

20

F

1Q

21

F

3Q

21

F

mmbpd

World production (mmbpd) World consumption (mmbpd)U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Breaking down supply expectations

Breakdown of oil supply by source (in mmbpd)

Total supply growth 2020

(mmbpd) -7.0

Total supply growth 2021

(mmbpd) -2.0

US -0.5 US -1.2

Iran -0.3 Saudi -0.6

Venezuela -0.1 Other OPEC -0.2

Saudi Arabia -1.5

Other OPEC -2.0

Canada -0.5

Russia -1.5

Brazil -0.1

Norway -0.5

Source: DBS Bank forecasts

• Saudi & Russia expected to lead production cuts by around 2.0-2.5mmbpd over 2020/21

• Non-OPEC+ producers like Canada, Brazil & Norway also expected to see some production shut-ins

• More downside risks in US supply than upside risks at this point of time

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Implication to various sub-segments

Sub-segment Comments

Upstreams/Integrateds

• Share performance most correlated to crude oil prices as E&P earnings directly hit by depressed oil prices.

• Most oil producers are loss-making at <U$30/bbl oil prices. Pure E&P names in our coverage have all-in-costs of

~US$30/bbl (CNOOC, PTTEP, Medco) to US$40/bbl (Hibiscus); Integrateds like Petrochina and Sinopec are higher at

>US$50/bbl

• While cash costs are much lower at ~US$15-20/bbl, most companies require at least US$50/bbl oil price to meet initial

capex budget and dividends payout requirement on sustainable basis and hence are trimming capex by 15-30% to

achieve cash flow neutrality at US$35/bbl this year.

• Prefer the pure upstream names to ride oil price recovery towards 2H20.

Downstream • Refining margins will benefit from the steep discounts in Middle East to Asia crude official selling prices, but still remain

under pressure from lackluster refined oil product demand.

• Plummeting crude oil prices has dramatically levelled the global petrochemicals competitive landscape, greatly eroding

the advantage ethane crackers in the US and Middle East had over their Asian peers and will likely promote wider

petrochemical product spreads y-o-y in 2020.

• Prefer Chinese refineries with a dominant domestic presence, due to the stark divergence in economic activity levels

between the country and the rest of the world.

Service Providers

• Depressed crude oil prices in 2020 and forced capital discipline mean that the global oilfield service (OFS) sector will

shrink materially in 2020/2021

• Global upstream capital expenditure is estimated to fall by at least 20% in 2020, and by another 5% in 2021

• Chinese OFS companies may fare better, as capital spending by Chinese national oil companies is expected to decline

by a more moderate 12-14% in 2020, and stage a modest 3-4% rebound in 2021

• Nevertheless, we have a bearish stance on the Chinese OFS sector – we believe the street’s earnings estimates are still

too optimistic; and valuation multiples are not low enough to reflect muted earnings prospects and potential financial

distress in the sector

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


How should investors position?

• Key O&G companies under our coverage plunged 40-50% in Mar. The upstream companies, including integrated oils, lost ~40%

their market capitalization in two weeks post OPEC+ fallout while the services providers fared worse, losing more than 50% of

their value within the same period. (as shown in table overleaf)

• … But has since recouped nearly half of their losses the past 1-month. This was buoyed by positive equity sentiment as well as

OPEC+ agreement on new production cut deal in Apr.

• We see potential downside risks at current levels in anticipation of continued downward spiral in oil prices the next 1-2 months

amidst global lockdown, dampening sector sentiment. We opine that a more sustainable recovery in oil prices and O&G stocks will

have to hinge on better clarity on easing COVID-19 situation and pick-up in oil demand.

• Will stocks re-test recent low? While oil prices have plunged to unprecedented depressed levels, stock prices may fare relatively

better, given OPEC+ production cut that comes into effect in May lasting through Apr-2022, that could potentially drive a V-

shaped recovery when COVID-19 is over.

• Pure upstream companies remain the best proxies to ride oil price recovery while refineries are safer proxy to demand recovery

post COVID-19. Selectively Buy good names on pullback in 2Q.

• Service providers’ outlook is weakened by capex cut for next 2 years and more stringent cost control. Typically lag oil price recovery

by 1-year.

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Company Share price (LC) P/Bv

Implied Downside to

2020 Low

Prior to OPEC+

fallout

First day closing

post OPEC+

fallout

2020

Low Current

2016

Low

2020

Low Current

Date 6-Mar 9-Mar 19-Mar 21-Apr

Upstream/Integrateds

CNOOC Ltd (883 HK) 10.62 8.79 6.40 8.27 0.7 0.6 0.7 -23%

PetroChina (857 HK) 3.01 2.72 2.23 2.71 0.6 0.3 0.4 -18%

China Petroleum & Chem (Sinopec) (386 HK) 3.93 3.82 3.20 3.79 0.6 0.5 0.6 -16%

Hibiscus Petroleum Berhad (HIBI MK) 0.71 0.41 0.26 0.425 0.3 0.4 0.6 -39%

Medco Energi Internasional (MEDC IJ) 665 535 312 408 0.2 0.6 0.4 -24%

PTT Exploration & Production (PTTEP TB) 106.5 74.75 55 76.25 0.7 0.8 0.8 -28%

Downstream

Sinopec Shanghai Petrochemical 2.04 2.14 1.66 2.13 1.3 0.6 0.7 -22%

Thai Oil PCL (TOP TB) 41.75 32.75 27.00 39.25 1.1 0.5 0.7 -31%

Source: Bloomberg Finance L.P., Companies, DBS Bank

Share price performance of Upstream, Downstream and Integrated Oils U740

U740

U740U740

U740

U740

U740

U740

U740

U740

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fcgeekQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fchagkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fciafkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fcccekQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fcbffkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fcedhkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fcgggkQEByd191c2VyaWRAQA==

Industry Insights


Company Share price (LC) P/Bv Implied Downside to 2020

Low Prior to OPEC+

fallout

First day closing

post OPEC+

fallout

2020

Low

Current 2016 Low 2020 Low Current

Date 6-Mar 9-Mar 19-Mar 21-Apr

Service Providers

China Oilfield Services Ltd (2883 HK) 10.46 8.38 5.18 5.83 0.4 0.9 0.7 -11%

Anton Oilfield Services Group (3337 HK) 0.75 0.63 0.47 0.49 0.6 0.5 0.4 -4%

Hilong Holding Ltd (1623 HK) 0.71 0.55 0.29 0.355 0.4 0.2 0.2 -18%

Serba Dinamik Holdings (SDH MK) 2.27 1.85 1.13 1.57 na 1.2 1.7 -28%

Bumi Armada (BAB MK) 0.28 0.16 0.115 0.165 0.6 0.2 0.3 -30%

Shipyards

Keppel Corporation (KEP SP) 6.22 5.62 4.93 5.67 0.8 0.8 0.9 -13%

Sembcorp Industries (SCI SP 1.77 1.61 1.49 1.52 0.6 0.4 0.4 -2%

Sembcorp Marine (SMM SP) 1.01 0.895 0.625 0.685 1.1 0.6 0.7 -9%

Yangzijiang Shipbuilding (YZJSGD SP) 0.905 0.845 0.79 1.02 0.6 0.5 0.6 -23%

Share price performance of Service Providers and Shipyards

Source: Bloomberg Finance L.P., Companies, DBS Bank

U740

U740

U740U740

U740

U740

U740

U740

U740

U740

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fcgjikQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fcfibkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fcieakQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fdcafkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fdcbbkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fbbffkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fbgjbkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fbgdgkQEByd191c2VyaWRAQA==

https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=fdafckQEByd191c2VyaWRAQA==

Industry Insights


Sensitivity of upstream target prices vs long-term oil prices

Oil Price (US$/bbl) 25 30 35 40 45 50 55 60 65

CNOOC (HKD) 2.30 4.30 5.00 6.40 8.00 10.00 12.00 14.50 16.50

Upside to current share price -72% -48% -40% -23% -3% 21% 45% 75% 100%

Upside from recent low -64% -33% -22% 0% 25% 56% 88% 127% 158%

PTTEP (THB) 65.8 75.5 85.19 94.87 104.53 115.23 127.38 139.61 151.24

Upside to current share price -14% -1% 12% 24% 37% 51% 67% 83% 98%

Upside from recent low 20% 37% 55% 72% 90% 110% 132% 154% 175%

Medco (Rp) 387 423 462 521.5 581 640.5 700 759.5 819

Upside to current share price -5% 4% 13% 28% 42% 57% 72% 86% 101%


Hibiscus (MYR) 0.32 0.46 0.6 0.74 0.89 1.03 1.17 1.31 1.45

Upside to current share price -25% 8% 41% 74% 109% 142% 175% 208% 241%


Source: DBS Bank

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Regional Energy Peer Comparison

P/E EV-to-EBITDA P/B ROE (%) Div yld

Company Recommendation Share price

(local) Target price

(local) Market cap

(US$m) CY20F CY21F CY20F CY21F CY20F CY21F CY20F CY21F CY20F

Integrated & Upstream

CNOOC HOLD 8.15 8.00 49,750 21.2x 11.8x 4.3x 3.2x 0.8x 0.7x 4.0% 6.8% 3.6%

Sinopec HOLD 3.97 4.00 74,125 18.2x 10.8x 4.7x 3.9x 0.6x 0.6x 3.3% 5.0% 3.8%

PetroChina HOLD 2.96 2.80 113,144 156.2x 22.3x 5.1x 4.4x 0.4x 0.4x 0.6% 2.0% 1.8%

PTT Group BUY 32.75 30.00 28,793 12.1x 9.9x 5.7x 5.3x 1.0x 1.0x 8.2% 9.0% 4.6%

PTT Exploration & Production BUY 72.50 85.00 9,523 11.8x 11.0x 2.9x 2.9x 0.8x 0.7x 7.1% 6.5% 4.5%

Medco Energi HOLD 386.00 700.00 519 2.9x 1.8x 4.6x 4.0x 0.2x 0.4x 5.6% 8.7% 0.0%

Hibiscus Petroleum BUY 0.43 0.82 171 3.6x 3.1x 0.8x 0.6x 0.6x 0.4x 15.7% 13.8% nm

Downstream refinery & petrochemical

Petronas Chemicals HOLD 5.32 5.50 9,667 17.4x 14.8x 7.5x 6.3x 1.4x 1.3x 8.0% 8.6% 3.3%

Bangchak Corp BUY 17.50 21.00 784 12.7x 7.0x 7.8x 6.6x 0.5x 0.5x 3.0% 7.2% 4.2%

Thai Oil BUY 38.25 41.00 2,322 16.1x 7.9x 10.0x 8.4x 0.6x 0.6x 3.6% 8.0% 3.5%

Indorama Ventures HOLD 27.00 24.00 4,254 11.1x 8.9x 8.1x 7.7x 1.0x 0.9x 9.1% 10.6% 3.8%

PTT Global Chemical HOLD 34.75 30.00 4,969 17.0x 10.6x 8.7x 6.5x 0.6x 0.5x 3.0% 5.2% 3.3%

Star Petroleum Refining FULLY VALUED 4.78 3.80 669 20.4x 7.3x 5.3x 3.1x 0.6x 0.6x 0.8% 8.9% 4.4%

Oilfield services/equipment manufacturer

CSE Global BUY 0.39 0.65 138 7.9x 7.4x 4.8x 4.2x 1.1x 1.0x 13.4% 13.8% 7.5%

Serba Dinamik Holdings BUY 1.57 2.90 1,120 8.5x 7.5x 6.4x 5.5x 1.7x 1.4x 21.3% 22.1% 3.6%

Sapura Energy BUY 0.09 0.13 370 nm nm 15.3x 11.3x 0.1x 0.1x -1.1% -0.2% 0.0%

Bumi Armada BUY 0.17 0.30 245 3.5x 3.2x 6.9x 6.5x 0.3x 0.3x 7.3% 7.7% 0.0%

Anton Oilfield Services HOLD 0.48 0.50 213 6.7x 4.6x 4.6x 3.7x 0.5x 0.4x 8.4% 11.4% 0.4%

China Oilfield Services HOLD 5.67 6.00 6,643 8.9x 8.4x 7.4x 6.8x 0.7x 0.6x 7.6% 7.8% 3.1%

Hilong FULLY VALUED 0.35 0.30 89 3.0x 2.7x 3.5x 3.4x 0.2x 0.2x 5.6% 5.9% 5.2%

Shipyards

Keppel Corp BUY 5.45 7.50 6,902 11.4x 10.3x 14.4x 13.7x 0.9x 0.8x 7.5% 7.9% 4.1%

Sembcorp Industries HOLD 1.51 2.20 1,873 7.1x 5.9x 8.9x 7.4x 0.4x 0.4x 5.6% 6.5% 3.2%

Sembcorp Marine HOLD 0.69 1.35 996 nm 171.3x 27.9x 22.9x 0.7x 0.7x -3.0% 0.2% 1.2%

Yangzijiang Shipbuilding BUY 0.87 1.50 2,355 5.8x 5.8x 3.0x 3.0x 0.5x 0.5x 8.8% 8.5% 5.0%


U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


DBS Bank recommendations are based on an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 22 Apr 2020 19:41:37 (SGT)

Dissemination Date: 22 Apr 2020 20:47:47 ((SGT))

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this

document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated

corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any

information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general

circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This

document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial

advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this

document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS

Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions

in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will

be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not

guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no

obligation to update the information in this report.

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research

publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant

uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not

materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as

recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or

in any other investment banking transaction in the past twelve months and does not engage in market-making.

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report

accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views

expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any

other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible

for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in

place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report

operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the

research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a proprietary position in CNOOC Ltd, China Petroleum & Chem,

PetroChina, PTT, PTT Exploration & Production, Bangchak Petroleum Pcl, Thai Oil PCL, Indorama Ventures, PTT Global Chemical, China Oilfield Services Ltd, Keppel Corporation, Sembcorp

Industries,Sembcorp Marine, Yangzijiang Shipbuilding, recommended in this report as of 31 Mar 2020.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services:

3. 5.DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Medco

Energi Internasional, Keppel Corporation, Sembcorp Industries, as of 31 Mar 2020.

4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Medco Energi Internasional, Sembcorp

Industries , in the past 12 months, as of 31 Mar 2020.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or

adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation

arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective

investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


5. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment

banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any

security discussed in this document should contact DBSVUSA exclusively.

Directorship/trustee interests:

6. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director of Keppel Corporation as of 31 Mar 2020.

Tham Sai Choy, a member of DBS Group Holdings Board of Directors, is a Director of Keppel Corporation as of 31 Mar 2020.

Disclosure of previous investment recommendation produced:

7. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same

securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous

investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other

jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial

services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is

regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on

securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is

attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated

activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). DBS Bank Ltd., Hong Kong Branch is a

limited liability company incorporated in Singapore.

This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or

licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. DBS Bank Ltd., Hong Kong Branch is a limited

liability company incorporated in Singapore.

For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-

2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page,

recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and

associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect

transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the

subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services

from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt

Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports

produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers

Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts

legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for

matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United Kingdom This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore.

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct

Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no

part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This

communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will

only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai International

Financial Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC,

Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional

clients (as defined in the DFSA rulebook) and no other person may act upon it.

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


United Arab

Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by

the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a

solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives,

financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or

holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or

complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd.. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research

analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation,

communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by

DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such

other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities

referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors

as defined in the laws and regulations of such jurisdictions.

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

Industry Insights


DBS Regional Research Offices

HONG KONG

DBS (Hong Kong) Ltd

Contact: Carol Wu

13th Floor One Island East,

18 Westlands Road,

Quarry Bay, Hong Kong

Tel: 852 3668 4181

Fax: 852 2521 1812

e-mail: [email protected]

MALAYSIA

AllianceDBS Research Sdn Bhd

Contact: Wong Ming Tek (128540 U)

19th Floor, Menara Multi-Purpose,

Capital Square,

8 Jalan Munshi Abdullah 50100

Kuala Lumpur, Malaysia.

Tel.: 603 2604 3333

Fax: 603 2604 3921


SINGAPORE

DBS Bank Ltd

Contact: Janice Chua

12 Marina Boulevard,

Marina Bay Financial Centre Tower 3

Singapore 018982

Tel: 65 6878 8888

Fax: 65 65353 418


Company Regn. No. 196800306E

INDONESIA

PT DBS Vickers Sekuritas (Indonesia)

Contact: Maynard Priajaya Arif

DBS Bank Tower

Ciputra World 1, 32/F

Jl. Prof. Dr. Satrio Kav. 3-5

Jakarta 12940, Indonesia

Tel: 62 21 3003 4900

Fax: 6221 3003 4943


THAILAND

DBS Vickers Securities (Thailand) Co Ltd

Contact: Chanpen Sirithanarattanakul

989 Siam Piwat Tower Building,

9th, 14th-15th Floor

Rama 1 Road, Pathumwan,

Bangkok Thailand 10330

Tel. 66 2 857 7831

Fax: 66 2 658 1269


Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand

U740

U740

U740

U740

U740

U740

U740

U740

U740

U740

industry insights regional oil and gas industry insights regional oil and gas page 3 what is up with...

Documents