Losers and winners on SGX

Singapore

OFFSHORE and marine (O&M) companies listed in Singapore were dragged down by plummeting oil prices on Friday, as Opec's decision not to cut production sent Brent crude crashing 5 per cent during the day to US$72 per barrel.

With analysts expecting such levels - at four-year lows - to persist until the first half of 2015, at least, the resultant spending cutbacks in oil-related projects are seen hurting O&M companies here.

Oil prices have plunged dramatically in the second half of this year from US$116 per barrel. Sushant Gupta, head of downstream research at Wood Mackenzie, attributes this to a slowdown in demand primarily from China and Europe. Wood Mackenzie's forecast showed demand growth of only 0.75 million barrels per day, or 0.8 per cent.

Lower capital expenditure can be expected in certain projects and would translate into slower order flows for oil-and- gas-related plays here, said Low Pei Han, analyst with OCBC Investment Research. The spending cuts could particularly affect deepwater, Gulf of Mexico and North Sea projects.

O&M stocks, which have largely been on the decline since oil prices started falling, took a beating on Friday in tandem with the steep drop in the oil price after the Opec meeting.

Keppel Corporation and Sembcorp Marine shares sank to their lowest price level in more than two years - down 2.17 per cent at S$9 and 5.44 per cent at S$3.13, respectively. Both counters were the top two losers on the Singapore Exchange (SGX) on Friday. Ezra Holdings (-7.64 per cent), Ezion Holdings (-5.69 per cent) and Nam Cheong (-5 per cent) were the other O&M stocks that recorded significant declines. The FT ST Oil and Gas Index fell 2.84 per cent to its lowest level since January 2012.

Offshore players involved in regional cabotage markets, such as in Indonesia, may be more resilient, along with those exposed to national oil companies (NOC) spending, noted UOB Kay Hian Research.

Some companies stand to benefit from the oil price decline. Transport companies, in particular, could benefit from savings in fuel costs. According to UOB Kay Hian analysts K Ajith and Angela Zhou, continued decline in fuel prices will positively impact airlines and container shippers as jet fuel and bunker fuel costs account for 40-50 per cent of operational expenditure for airlines and 20-30 per cent for container shippers.

The analysts estimate that for SIA, a US$5 per barrel oil price drop could yield an 11.5 per cent incremental net profit, whereas a US$10 price drop will result in 23 per cent higher net profit.

The expected cost savings boosted transport stocks like NOL (+2.5 per cent), SIA (+2.57 per cent) and even troubled Tiger Airways (+5.08 per cent) in trading on Friday. Historically, though, O&M and oil & gas stocks have been more sensitive to oil prices than transport stocks, according to SGX data.