This is Part 2. Part 1 was: OSK-DMG: Our High-Growth, Low-Valuation Oil & Gas Stock Picks...
Excerpts from analyst's report
OSK-DMG analyst: Lee Yue Jer, CFA & Jesalyn Wong
With costs on par with OPEC producers, Giken’s management is unfazed by the oil market conditions and continues to drill, alongside securing more acreage and entering into new old-wells contracts. Already the largest old-well operator in Indonesia by far, we expect Giken to continue growing its portfolio and maintaining its dominant position.
Nam Cheong – The dominant shallow-water support vessel builder. Nam Cheong is now the largest shallow-water Offshore Support Vessel (OSV) builder in the world with a c.15% market share. We believe its build-to-stock model has effectively disrupted the industry, giving customers new flexibility to bid for contracts without initial asset ownership, which would be especially appreciated in the current uncertain climate. Nam Cheong’s building programme includes a good mix of production-focused assets such as accommodation work boats and work barges, which will continue to enjoy strong demand today. We believe Nam Cheong will emerge from this downturn with a stronger market position and closer customer ties.
Keppel Corp – Near Market, Near Customer. Keppel employs the Near Market, Near Customer long-term strategy, and executes this vision through entering developing markets very early. Its early entry into Brazil has paid off, with its established yard enjoying relatively smooth operations. It also has yards in the Philippines, Azerbaijan, China, and we expect the Mexican yard agreement to be inked this year. In addition, Keppel has a strong design capability, with new products such as the Floating Liquefied Natural Gas (FLNG) vessel design, its harsh environment rig designs, and its proprietary CAN DO drillship design. These yield strong competitive advantages over the medium to long term.
Marco Polo Marine – Jack-up rig contract could spark a sharp rerating. Marco Polo Marine (MPM) first entered the OSV business in Indonesia in 2010, with little prior experience and no track record. Today, it owns the largest fleet of 8,000-brake horsepower (bhp) anchor handlers in Indonesia and OSVs are the largest contributor to the company’s bottomline.
We see the jack-up rig, to be delivered in 4QCY15, as a potential game-changer to the company in the same way. Indonesia’s net-importer status, burgeoning oil consumption, and strong political will to drive oil & gas investments present a positive macro outlook for MPM. Management has unflinchingly executed their strategy to achieve the vision of being a market leader in the OSV space in Indonesia – we now look forward to their next epoch.