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SGX maritime & offshore index rebounds nearly 20% from trough

Copyright 2017 Singapore Press Holdings Limited
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THE Singapore Exchange (SGX) Maritime & Offshore Services (MOE) Index, comprising 18 constituent stocks in the sector, has rebounded 19.7 per cent in tandem with the recovery of crude oil prices.

SGX said in its market update released on Thursday that the rebound from the index's trough on Sept 1 may be an indication that the MOE sector could be bottoming out.

Taking into account most of these stocks are still trading at below book values, however, the sector could appeal to investors seeking returns from bottom-fishing.

The MOE sector may have been challenged with defaults, bankruptcies and consolidations, with many companies having incurred consequential quarterly losses under a multi-year downturn sparked off by the 2014 oil price collapse.

But a pact reached on Dec 10 among Opec (Organization of Petroleum Exporting Countries) and non-Opec crude producers to cut production has fuelled the oil price rebound. West Texas Intermediate index has recovered 24.8 per cent from early September 2016 to close at US$53.88 on Feb 1.

And despite downward revisions in earnings for the sector, companies still continue to see their stock prices rebounding from last September along with the oil price recovery, SGX noted.

This is in line with a forward consensus from sell-side research analysts projecting the sector's return to profitability in the next three years as forward return on equity turns positive.

SGX said the general expectation is that crude oil prices will stabilise around US$50-US$60 levels, which will likely benefit companies involved in exploration and production and offshore vessel owners before those further down in the value chain such as shipyard owners, rigs and shipbuilders.

SGX also cited support for Singapore's MOE sector coming in the form of enhancements to IE Singapore's Internalisation Finance Scheme and the introduction of Spring Singapore's Bridging Loan.

It noted bright spots amid the broad-sector weakness. Singapore continues to lay claim as the world's top bunkering port and a key maritime hub on registering increases of 7.7 per cent and 6.3 per cent respectively in bunker sales and vessel arrival tonnage in 2016 against 2015.

Ten of the 18 constituent stocks under the SGX MOE Index are trading below their book values. The average current price-to-book ratios across these stocks stood at 0.7 times.

The 18 constituents have a combined market capitalisation of over S$30 billion. These 18 companies averaged a market capitalisation-weighted total return of negative 10.6 per cent in 2016, while the 2017 year-to-date total return is 6.1 per cent.

SGX advised investors interested in bottom-fishing to also assess individual companies based on key indicators including order books momentum, health of operating cash flows and strengths of balance sheets.


Last Updated on : 07 Feb 2017