Chart of the Day: Here's proof that Singapore offshore cycle is still on uptrend

And newbuild rig prices may not surprise.

Maybank Kim Eng holds the view that (1) the offshore cycle is still on an uptrend and (2) newbuild rig prices are unlikely to trend lower despite current competition.

Against this backdrop, analysts believe that incremental rig price increase and a better product mix will result in moderate margin expansion as opposed to the margin decline that is widely expected.

Here's more from Maybank Kim Eng:

There also seems to be some false association that recent margin decline reflects the effect of competition from Chinese and Korean yards. This is untrue as the margin decline is the result of the composition of products secured at various price levels.

Should trade up to higher valuations. Underperformance of the rigbuilders has made valuations more attractive. On a P/B basis, which we believe is more relevant for cyclical stocks, both are now trading below mean.

In terms of PER, SMM is also trading below mean level although Keppel trades slightly above mean. In the last rigbuilding cycle (2005-2008), both stocks traded up to above mean levels.

Given our view that we are in an offshore upcycle, rigbuilders should trade up to valuations above its historical mean levels. Further contract wins and margin outperformance against overly-pessimistic expectations should drive stock price re-rating.

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