Singapore rig builders fall on lower oil price, downgrade

Shares of Singapore rig builders fell on Thursday as concerns about the increasingly uncertain global economic outlook and Europe’s debt woes pushed oil prices down.

The stock of Keppel Corp (KPLM.SI), the world’s largest rig builder, dropped by as much as 3.7% while rival Sembcorp Marine (SCMN.SI) slumped as much as 2.9%.

At 10:05 GMT, shares of Keppel and Sembcorp were down 2.6% and 1.5% respectively. The broader Straits Times Index <.FTSTI> was 0.5% lower.

 

U.S. crude oil futures (CLc1) lost more than $1 a barrel to below US$80 ($103) in early Asian trade on Thursday as investor concerns mounted about Europe’s attempts to solve its sovereign debt problems.

 

UOB Kay Hian on Thursday downgraded the overall Singapore shipyard sector to market weight from overweight, citing a possible slowdown in orders.

 

The brokerage said that in a rising oil price environment, shares of Keppel and Sembcorp would normally see a steep climb due to increased orders and better valuations by analysts.

 

“Conversely, share price deflation can be equally steep especially if oil price falls below US$80 per barrel,” UOB said.

 

The brokerage had cut its target price on Keppel to $9.60 from $13.00, but maintained its buy rating on the stock. However it downgraded Sembcorp Marine to hold from buy and lowered its target price to $4.00 from $6.25.

 

Keppel had secured total new contracts worth $7.9 billion year-to-date, UOB said, adding that the rig builder looks set to meet its contract win projection of $10 billion for 2011.

 

However, in view of Keppel’s bumper harvest this year and the economic slowdown just round the corner, UOB said it had lowered its contract win assumptions for 2012 and 2013 from $5 billion to $4 billion each.

 

In comparison, Sembcorp had won $2.6 billion worth of contracts year-to-date, trailing Keppel, UOB noted.

 

The brokerage cut its 2011 contract win projection for Sembcorp from $6 billion to $5 billion, but it warned of a downside risk to its forecast if a few semi-submersible rig orders at US$550-US$600 million each do not materialize by end 2011.

 

UOB added that it had lowered its projections for 2012 and 2013 from $5 billion to $3.5 billion each.