Fundamentals are still shaky.
Investors should keep their hopes in check, as analysts are dubious that the recent rally in oil and gas (O&G) stocks will last.
According to a report by DBS, this is on back absence of significant changes in fundamentals.
Moreover, analysts forecast a pullback in oil prices in the near term. This is on back of output freeze talks hitting a roadblock with Iran’s resistance to participate. In addition, refineries are entering their maintenance period in April.
DBS further asserts that headwinds will continue to plague O&G companies. Ezra is most likely to suffer through impairments this year, as it has made none so far. Keppel could be under pressure to make provisions of up to $200m for non-Sete Brasil projects amid climbing deferment and cancellation jitters, while Cosco continues to grapple with overrun issues.
Meanwhile, though Sembcorp Marine seems to have made adequate provisions for non-Sete projects, risks of further provisions for Sete loom.
In this turbulent landscape, companies most likely to weather the downturn are those that rolled out cost-slashing schemes, deferred vessel deliveries, and hatched plans to diversify outside the O&G markets. In addition, those with low gearing and little or no upcoming non-bank debt repayments like POSH and Mermaid should be less at risk.
DBS notes that Ezion, Mermaid, PACRA, and Yangzijiang are the least likely to struggle through impairments after the recent round of aggressive write-downs.
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