With the crude oil price rocketing towards US$150/barrel just months ago, Offshore&Marine stocks were projecting a promising months ahead. Now with crude oil price potentially could drop to US$50/barrel, the whole projection totally turns south even with a strong order books supporting them. With a fear of global recession and a weakening USD ( contracts awarded were all quoted in USD ), the valuation of Offshore&Marine stocks will have to adjusted downward mainly due to lacking of further projects looking forwards and revenue decreased due to weakening of USD. There are also fear of the existing contracts could be cancel or clients unable to make payment. These are the factors that are worrying for Offshore&Marine stocks at the moment. Below is the valuation of KepCorp and SembMar in last 10 years during the bear market scenarios :-
KepCorp :-
current valuation = 5.78x PER; 1.14x P/B FY07 ( Price = $3.75 as of 24th Oct 08, Book Value FY07 = $3.28, EPS FY07 = $0.649 )
SARS ( 02/03 ) = 7x PER; 0.9x P/B
dot.com bubble & 911 ( 01 ) = 5x PER; 0.7x P/B
asian crisis ( 97/99 ) = 5x PER; 0.7x P/B
SembMar :-
current valuation = 10.5x PER; 1.52x P/B FY07 ( Price = $1.23 as of 24th Oct 08, Book Value FY07 = $0.81, EPS FY07 = $0.117 )
SARS ( 02/03 ) = 15x PER; 1.2x P/B
dot.com bubble & 911 ( 01 ) = 11x PER; 1.2x P/B
asian crisis ( 97/99 ) = 10x PER; 1.1x P/B
The valuation for both the world #1 and #2 rig builders at the moment has more or less entered into the SARS period however with crude oil price possible to drop to US$50/barrel coupled with decline in demand for oil rig building next year, revenue for the 2 companies for FY09 would have to be projected downward. Considering using the "projected downward" earnings of FY09 to valuate them, the present price might still be "expensive valuation" as compared with SARS period. Hence, further downside in stock prices might exist in near-term. The worst case scenario would be valuation drops to the "cheapest" level as in the Asian financial crisis period.
