Rig fundamentals have not improved.
Keppel Corporation’s share price enjoyed a brisk rally in recent weeks, riding a rising wave of hope that oil prices are finally headed for a sustained recovery. However, analysts warn that the price surge is unsustainable as Keppel’s key rig-building business is still navigating choppy waters.
“We think [the spike] was driven purely by oil price sentiments. This is unsustainable as rig building fundamentals have not improved and EPS is likely to be subjected to further consensus downgrades,” Maybank Kim Eng analyst Yeak Chee Keong noted in a report.
He warned that revenue from the O&M segment is expected to drop to around $4.0 to $4.5 billion, a far cry from $6.2 to $8.6b over the past three years.
Yeak noted that Keppel’s share price historically correlates with oil prices because rig orders generally rise in tandem with crude prices. However, he warned that rig building demand will not pick up even if oil prices rebound to USD40-50 per barrel because the market is currently facing a supply glut.
“Unless we see a sustained oil rally past USD60/bbl, capex for the oil industry will remain subdued. We even see cracks emerging in the FLNG market which some industry players have been placing their hopes in,” he said.
“ Barring any sustained surprise surge in oil price past USD60/bbl, negative O&M developments could eclipse any positive developments from Property or Infrastructure for now,” he added.
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