Maritime stocks gain momentum into this year


It rebounded 19.7% in 4Q16 from its trough last September.

With the recovery of crude oil prices that could be an indication of a bottoming out, the SGX Maritime & Offshore Services (MOE) Index has rebounded 19.7% from its trough in September.

According to SGX My Gateway, 18 constituents under SGX MOE are trading at an average current price-to-book (PB) ratio of 0.7x, with 10 of them trading below their book values. despite the rally.

“Consensus estimates are expecting oil prices to stabilise and the MOE Sector to return to profitability. Notably, MOE stocks have also rebounded despite the latest round of earnings cuts,” SGX said.

Here’s more from SGX My Gateway:

WTI crude oil prices has since recovered 24.8% from early Sep last year and closed at $53.88/bbl yesterday, on the basis of supply cuts. The recent momentum in crude oil was due to the Organisation of Petroleum Exporting Countries’ (OPEC) decision to cut production. Non-OPEC producers have also agreed to reduce production by 558,000 barrels a day. This is in-line with the rebound in the SGX MOE Index since last Sep.

10 out of 18 companies on the SGX MOE Index are trading below book values. On a historical basis, most MOE stocks within the index are trading at trough valuations since 2008 (see tables below). The two charts below show the historical PB ratios of the two largest pure offshore and marine plays by market capitalisation (excluding industrial conglomerates and business trusts) which include Sembcorp Marine and Yangzijiang Shipbuilding. Their current PB ratios are below their historical lows during the Global Financial Crisis in 2008. Ezion Holdings, third largest after the two, exhibits similar characteristics.

PB ratios are one of the valuation metrics used to value the MOE Sector, especially when earnings may be depressed or negative, which may result in abnormal or unavailable price-to-earnings (PE) ratios.

An SGX report, published last month, have cited that industry analysts and participants are expecting crude oil prices to stabilise around US$50-60/bbl levels. This is likely to benefit more upstream companies involved in exploration and production and offshore vessel owners before downstream companies such as shipyard owners, rigs and ship builders.

With oil prices stabilising, consensus is expecting the sector to return to profitability in the next three years as forward return on equity (ROE) turns positive. The MOE Sector today has been challenged with defaults, bankruptcies and consolidations and many companies have since incurred losses and falling or negative ROEs.