Energy 120403

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Energy 120403

  1. 1. Global StrategyEquity Research Asia Sector StrategyApril 3, 2012 Rising Costs and PremiumsS&P 2012 GDP ESTIMATES: Generally weak finish to 2011; cost growth a concern. Overall the AsianChina: 7.7%-8.2% oil and gas companies reported results that were slightly weaker thanHong Kong: 2.5%-3.0% expected. Both PetroChina and Sinopec’s 2011 numbers were hit by higher-India: 6.8%-7.3% than-expected refining losses, as refined product price adjustments by theIndonesia: 6.0%-6.5% NDRC lagged the run-up in crude oil prices. CNOOC Ltd’s results were in lineJapan: 1.5%-2.0% with our forecast and consensus, but a key highlight of the results was theKorea: 2.8%-3.3% significant cost challenges faced by CNOOC Ltd, in part due to the PL19-3 oilMalaysia: 4.4%-4.9% spill. In fact, all the O&G companies under our coverage showed a YoYSingapore: 2.0%-2.5% decline in EBIT margins for 2011, with the exception of Thai E&P PTTEP.Taiwan: 2.3%-2.8%Thailand: 3.5%-4.0% 1Q12 roundup Despite the generally weak 2011 results, Asian oil & gasU.S.: 2.1% counters performed well in 1Q12, up 9.9% on average. Both PetroChina andEurozone: 0.0% CNOOC Ltd outperformed both its Asian and global peers, given its upstream leverage amid a strong crude oil price environment and rising2012 INDEX TARGETS: geopolitical risk in the Middle East. Sinopec, Asia‘s biggest refiner and moreS&P 500: 1,450 focused on the price-regulated downstream sector in China, lagged its peersS&P Euro 350: 1,170 but still gained 3.5% in 1Q12. Meanwhile, Thai PTTEP lagged its upstreamS&P Asia 50: 3,500 peers due to its high gas production (which is subject largely to annual price adjustments), but its parent company, the integrated PTT PCL, performed well in 1Q12, up 11.3% on improved economic prospects for Thailand. Asian spread s to Brent are widening That Brent crude is now trading at a spreads widening. significant premium to WTI, despite historically trading at a discount, is a well-known story, with the premium to do with the potential MENA supply disruptions, weak U.S. demand growth and high stocks at the CushingEnergy terminal. A lesser-known fact is that the premiums for benchmark Southeast Asian crudes such as Minas and Tapis to Brent have risen by 126% and 300%Oil & Gas vs. 2010 averages, while Cinta now trades at a USD13/bbl premium to Brent, from a discount of USD2/bbl in 2010. We believe this is due to supplyOverweight disruptions from politically-unstable South Sudan (large supplier of crude oil to China and Malaysia) and Australia (hit by tropical cyclones in April), as well as strong demand from Japan. Looking ahead, Japanese demand growth could trend down on lower spring power consumption, and Australia could resume exports in May as the cyclones largely missed production facilities, and this may have a dampening effect on premiums for regionalAhmad Halim, CFAEquity Analyst benchmarks. Preferred picks We continue to have an Overweight stance on the sector, picks. as valuations are accommodative, and growth prospects remain in place. Despite projecting relatively flat production growth for CNOOC Ltd (4- STARS), we see the company as a major beneficiary of the higher Asian spreads, given that Minas and Tapis account for 60% of its pricing benchmark. PetroChina (4-STARS) and Sinopec’s (4-STARS) prospects are brighter this year, despite higher crude oil costs, given that pricing reform may gain pace in 2012 on lowered inflation expectations.Standard & Poor’s This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither Standard & Poor’s nor any other party guarantees its accuracy or makes warranties regarding resultsEquity Research Services from its usage. Redistribution is prohibited without written permission. Copyright © 2012. All required30 Cecil Street d i s c l o s ur e s a nd an a l y st c er t if i c a t io n ap p e ar s o n t he la s t 3 p a g e s of t h i s r epo r t . A dd i t io n a l i nf or m a t io n i sPrudential Tower, 17th Floor a v a i l a b le on r eq u e st .Singapore, 049712
  2. 2. April 3, 2012 Global Strat egy Longer-term prospects for Sinopec are also improving, with its record projected upstream capex spending in 2012. We continue to prefer PTT PCL 2 (3-STARS) over PTTEP (2-STARS) in the Thai O&G space, given the latter’s high valuations and the former’s broader exposure to the Thai economy, which is expected to rebound from last year’s flooding. Select Integrated Oil & Gas and E&P Performance and Key Capital IQ Consensus Ratios as at April 2, 2012 April 2, Price Performance PER (x) PAT Growth Market Trading Cap (USD Company Name CIQ Ticker Ccy Share Price mln) FY2012 FY2013 FY2012 FY2013 1 Mth 3 Mths 6 Mths FY2012 FY2013 FY2012 FY2013 Integrated O&G Exxon Mobil Corporation NYSE:XOM USD 87.07 410,380 0.9% 2.7% 19.9% 10.6x 9.8x -7.5% 4.7% PetroChina Co. Ltd. SEHK:857 HKD 10.96 279,244 -6.8% 13.3% 13.3% 10.4x 9.7x 20.1% 5.2% Royal Dutch Shell plc LSE:RDSA GBP 22.19 226,967 -2.9% -6.4% 11.0% 7.7x 7.5x -12.6% 6.1% Chevron Corporation NYSE:CVX USD 108.30 214,106 -1.2% 1.8% 17.0% 8.3x 8.0x -3.8% 0.8% BP plc LSE:BP. GBP 4.71 143,133 -5.0% 2.4% 21.4% 6.8x 6.5x -19.9% 3.8% ConocoPhillips NYSE:COP USD 76.87 98,370 -1.0% 5.5% 21.4% 8.9x 8.3x -11.2% 3.4% China Petroleum & Chemical Corp. SEHK:386 HKD 8.42 98,261 -5.6% 3.1% 9.6% 7.4x 6.7x 11.9% 9.8% PTT Public Co. Ltd. SET:PTT THB 357.00 33,102 -2.2% 12.3% 37.3% 8.7x 7.8x 10.9% 13.2% Average -2.99% 4.33% 18.85% 8.6x 8.0x -1.5% 5.9% Exploration & Production (E&P) CNOOC Ltd. SEHK:883 HKD 15.86 91,179 -9.1% 16.8% 22.0% 8.3x 8.3x -2.5% 1.0% Statoil ASA OB:STL NOK 156.50 87,704 -2.6% 0.8% 23.2% 8.9x 8.3x -30.5% 4.0% Suncor Energy Inc. TSX:SU CAD 33.20 52,225 -6.3% 13.0% 24.1% 9.8x 9.2x NA NA Anadarko Petroleum Corporation NYSE:APC USD 79.11 39,997 -4.2% 3.6% 25.5% 20.0x 15.9x NA NA Apache Corp. NYSE:APA USD 100.97 38,805 -5.1% 11.5% 25.8% 8.0x 7.2x NA NA Woodside Petroleum Ltd. ASX:WPL AUD 35.36 29,693 -2.6% 15.5% 8.9% 15.6x 13.3x 23.0% 22.4% Hess Corporation NYSE:HES USD 59.55 20,100 -9.0% 4.8% 13.5% 9.0x 7.5x 28.9% 17.6% PTT Exploration and Production Public Co. Ltd SET:PTTEP THB 176.50 19,022 -4.1% 4.7% 26.5% 10.9x 9.1x 20.2% 19.5% Average -5.37% 8.85% 21.19% 10.1x 9.0x 7.8% 7.8 % 12.9% EV/EBITDA EV/EBITDA PBV ROE Gross Margin Div Yield Company Name FY2012 FY2012 FY2013 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 FY2012 FY2013 Integrated O&G Exxon Mobil Corporation NYSE:XOM 4.8x 4.6x 2.4x 2.2x 22.4% 21.0% 42.70% 44.30% 2.27% 2.40% PetroChina Co. Ltd. SEHK:857 5.6x 5.3x 1.5x 1.4x 14.6% 14.7% 37.40% 46.85% 4.38% 4.72% Royal Dutch Shell plc LSE:RDSA 4.0x 3.8x 1.2x 1.1x 15.6% 15.0% 17.80% 18.40% 4.74% 4.91% Chevron Corporation NYSE:CVX 3.5x 3.4x 1.6x 1.4x 19.9% 18.1% 44.30% 45.90% 3.06% 3.22% BP plc LSE:BP. 3.9x 3.7x 1.2x 1.0x 18.0% 17.0% 18.80% 19.70% 4.25% 4.69% ConocoPhillips NYSE:COP 3.9x 3.8x 1.4x 1.3x 16.3% 15.4% 27.30% 28.60% 3.58% 3.81% China Petroleum & Chemical Corp. SEHK:386 4.6x 4.2x 1.1x 1.0x 15.9% 15.7% 16.89% 17.28% 3.93% 4.35% PTT Public Co. Ltd. SET:PTT 6.0x 5.3x 1.6x 1.4x 19.6% 19.4% 9.42% 10.28% 3.89% 4.30% Average 4.5x 4.3x 1.5x 1.3x 17.8% 17.0% 26.83% 28.91% 3.76% 4.05% Exploration & Production (E&P) CNOOC Ltd. SEHK:883 4.1x 4.0x 1.9x 1.6x 23.9% 21.1% 62.67% 61.45% 3.81% 3.97% Statoil ASA OB:STL 2.2x 2.1x 1.6x 1.4x 18.6% 18.0% 47.28% 45.87% 4.33% 4.55% Suncor Energy Inc. TSX:SU 5.0x 4.6x 1.2x 1.0x 13.4% 12.1% 60.80% 62.60% 1.37% 1.45% Anadarko Petroleum Corporation NYSE:APC 5.9x 5.1x 1.9x 1.7x 9.9% 11.7% 71.30% NA 0.46% NA Apache Corp. NYSE:APA 3.4x 3.2x 1.2x 1.0x 15.6% 14.9% 79.30% NA 0.64% NA Woodside Petroleum Ltd. ASX:WPL 8.8x 7.4x 2.2x 1.9x 14.5% 16.4% 68.90% 68.90% 3.30% 3.75% Hess Corporation NYSE:HES 3.5x 3.0x 1.0x 0.9x 11.4% 11.1% 36.30% 37.60% 0.70% 0.70% PTT Exploration and Production Public Co. Ltd SET:PTTEP 4.9x 4.1x 2.4x 2.1x 23.7% 24.2% 51.61% 51.00% 3.53% 4.30% Average 4.7x 4.2x 1.7x 1.5x 16.4% 16.2% 59.77% 54.57% 2.27% 3.12% Source: S&P Capital IQ Standard & Poor’s Equity Research
  3. 3. April 3 , 2012 Global Strat egy S&P Capital IQ Research S&P Capital IQ U.S. includes Standard & Poor’s Research–Glossary Investment Advisory Services LLC; Standard & Poor’s Equity Research Services Europe includes Standard & Poor’s LLC- London; Standard & Poor’s Equity 3 Research Services Asia includes Standard & Poor’s LLC’s offices in Singapore,S&P STARS - Since January 1, 1987, S&P Capital IQ Equity Research has ranked a Standard & Poor’s Investment Advisory Services (HK) Limited in Hong Kong,universe of U.S. common stocks, ADRs (American Depositary Receipts), and ADSs Standard & Poor’s Malaysia Sdn Bhd, and Standard & Poor’s Information Services(American Depositary Shares) based on a given equity’s potential for future (Australia) Pty Ltd.performance. Similarly, S&P Capital IQ Equity Research has used STARS® Abbreviations Used in S&P Capital IQ Equity Research Reportsmethodology to rank Asian and European equities since June 30, 2002. Under CAGR- Compound Annual Growth Rateproprietary STARS (STock Appreciation Ranking System), S&P equity analysts rank CAPEX- Capital Expendituresequities according to their individual forecast of an equity’s future total return CY- Calendar Yearpotential versus the expected total return of a relevant benchmark (e.g., a regional DCF- Discounted Cash Flowindex (S&P Asia 50 Index, S&P Europe 350® Index or S&P 500® Index)), based on a EBIT- Earnings Before Interest and Taxes12-month time horizon. STARS was designed to meet the needs of investors looking EBITDA- Earnings Before Interest, Taxes, Depreciation and Amortizationto put their investment decisions in perspective. Data used to assist in determining EPS- Earnings Per Sharethe STARS ranking may be the result of the analyst’s own models as well as internal EV- Enterprise Valueproprietary models resulting from dynamic data inputs. FCF- Free Cash FlowS&P Quality Rankings (also known as S&P Earnings & Dividend Rankings Rankings)- FFO- Funds From OperationsGrowth and stability of earnings and dividends are deemed key elements in FY- Fiscal Yearestablishing S&P’s earnings and dividend rankings for common stocks, which are P/E- Price/Earningsdesigned to capsulize the nature of this record in a single symbol. It should be noted, PEG Ratio- P/E-to-Growth Ratiohowever, that the process also takes into consideration certain adjustments and PV- Present Valuemodifications deemed desirable in establishing such rankings. The final score for R&D- Research & Developmenteach stock is measured against a scoring matrix determined by analysis of the scores ROE- Return on Equityof a large and representative sample of stocks. The range of scores in the array of ROI- Return on Investmentthis sample has been aligned with the following ladder of rankings: ROIC- Return on Invested Capital ROA- Return on AssetsA+ Highest B+ Average C Lowest SG&A- Selling, General & Administrative ExpensesA High B Below Average D In Reorganization WACC- Weighted Average Cost of CapitalA- Above Average B- Lower NR Not Ranked Dividends on American Depository Receipts (ADRs) and American DepositoryS&P Issuer Credit Rating - A Standard & Poor’s Issuer Credit Rating is a current Shares (ADSs) are net of taxes (paid in the country of origin).opinion of an obligor’s overall financial capacity (its creditworthiness) to pay itsfinancial obligations. This opinion focuses on the obligor’s capacity and willingnessto meet its financial commitments as they come due. It does not apply to any specificfinancial obligation, as it does not take into account the nature of and provisions of Disclosures/Disclaimersthe obligation, its standing in bankruptcy or liquidation, statutory preferences, or thelegality and enforceability of the obligation. In addition, it does not take into accountthe creditworthiness of the guarantors, insurers, or other forms of creditenhancement on the obligation. Required Disclosures In contrast to the qualitative STARS recommendations covered in this report, which IQS&P Capital IQ EPS Estimates – S&P Capital IQ earnings per share (EPS) estimates are determined and assigned by S&P Capital IQ equity analysts, S&P’s quantitativereflect analyst projections of future EPS from continuing operations, and generally evaluations are derived from S&P’s proprietary Fair Value quantitative model. Inexclude various items that are viewed as special, non-recurring, or extraordinary. particular, the Fair Value Ranking methodology is a relative ranking methodology,Also, S&P Capital IQ EPS estimates reflect either forecasts of S&P Capital IQ equity whereas the STARS methodology is not. Because the Fair Value model and theanalysts; or, the consensus (average) EPS estimate, which are independently STARS methodology reflect different criteria, assumptions and analytical methods,compiled by Capital IQ, a data provider to S&P Capital IQ Equity Research. Among quantitative evaluations may at times differ from (or even contradict) an equitythe items typically excluded from EPS estimates are asset sale gains; impairment, analyst’s STARS recommendations. As a quantitative model, Fair Value relies onrestructuring or merger-related charges; legal and insurance settlements; in process history and consensus estimates and does not introduce an element of subjectivityresearch and development expenses; gains or losses on the extinguishment of debt; as can be the case with equity analysts in assigning STARS recommendations.the cumulative effect of accounting changes; and earnings related to operations thathave been classified by the company as discontinued. The inclusion of some items,such as stock option expense and recurring types of other charges, may vary, and S&P Global STARS Distributiondepend on such factors as industry practice, analyst judgment, and the extent to In North Americawhich some types of data is disclosed by companies. As of December 31, 2011, research analysts at S&P Capital IQ Equity Research North America recommended 39.1% of issuers with buy recommendations, 57.4%S&P Core Earnings - S&P Capital IQ Core Earnings is a uniform methodology for with hold recommendations and 3.5% with sell recommendations.adjusting operating earnings by focusing on a companys after-tax earningsgenerated from its principal businesses. Included in the S&P Capital IQ definition are In Europeemployee stock option grant expenses, pension costs, restructuring charges from As of December 31, 2011, research analysts at S&P Capital IQ Equity Researchongoing operations, write-downs of depreciable or amortizable operating assets, Europe recommended 31.5% of issuers with buy recommendations, 50.6% withpurchased research and development, M&A related expenses and unrealized hold recommendations and 17.9% with sell recommendations.gains/losses from hedging activities. Excluded from the definition are pension gains,impairment of goodwill charges, gains or losses from asset sales, reversal of prior- In Asiayear charges and provision from litigation or insurance settlements. As of December 31, 2011, research analysts at S&P Capital IQ Equity Research AsiaS&P 12 Month Target Price – The S&P Capital IQ equity analyst’s projection of the recommended 43.8% of issuers with buy recommendations, 51.0% with holdmarket price a given security will command 12 months hence, based on a recommendations and 5.2% with sell recommendations.combination of intrinsic, relative, and private market valuation metrics, including S&PFair Value. Standard & Poor’s Equity Research
  4. 4. April 3 , 2012 Global Strat egyGlobally The research and analytical services performed by SPIAS, McGraw-Hill FinancialAs of December 31, 2011, research analysts at S&P Capital IQ Equity Research Research Europe Limited, S&PM, and SPIS are each conducted separately from any 4globally recommended 38.3% of issuers with buy recommendations, 55.7% with hold other analytical activity of S&P Capital IQ.recommendations and 6.0% with sell recommendations. S&P Capital IQ or an affiliate may license certain intellectual property or provide5-STARS (Strong Buy) Total return is expected to outperform the total return of a Buy): pricing or other services to, or otherwise have a financial interest in, certain issuersrelevant benchmark, by a wide margin over the coming 12 months, with shares rising of securities, including exchange-traded investments whose investment objective isin price on an absolute basis. to substantially replicate the returns of a proprietary Standard & Poors index, such4-STARS (Buy): Total return is expected to outperform the total return of a relevant as the S&P 500. In cases where S&P Capital IQ or an affiliate is paid fees that arebenchmark over the coming 12 months, with shares rising in price on an absolute tied to the amount of assets that are invested in the fund or the volume of tradingbasis. activity in the fund, investment in the fund will generally result in S&P Capital IQ or3-STARS (Hold): Total return is expected to closely approximate the total return of a an affiliate earning compensation in addition to the subscription fees or otherrelevant benchmark over the coming 12 months, with shares generally rising in price compensation for services rendered by S&P Capital IQ. A reference to a particularon an absolute basis. investment or security by S&P Capital IQ and/or one of its affiliates is not a2-STARS (Sell): Total return is expected to underperform the total return of a recommendation to buy, sell, or hold such investment or security, nor is itrelevant benchmark over the coming 12 months, and the share price is not considered to be investment advice.anticipated to show a gain.1-STARS (Strong Sell Total return is expected to underperform the total return of a Sell): Indexes are unmanaged, statistical composites and their returns do not includerelevant benchmark by a wide margin over the coming 12 months, with shares falling payment of any sales charges or fees an investor would pay to purchase thein price on an absolute basis. securities they represent. Such costs would lower performance. It is not possible to invest directly in an index.Relevant benchmarks: In North America, the relevant benchmark is the S&P 500Index, in Europe and in Asia, the relevant benchmarks are generally the S&P Europe S&P Capital IQ and its affiliates provide a wide range of services to, or relating to,350 Index and the S&P Asia 50 Index. many organizations, including issuers of securities, investment advisers, broker- dealers, investment banks, other financial institutions and financial intermediaries,For All Regions: and accordingly may receive fees or other economic benefits from thoseAll of the views expressed in this research report accurately reflect the research organizations, including organizations whose securities or services they mayanalysts personal views regarding any and all of the subject securities or recommend, rate, include in model portfolios, evaluate or otherwise address.issuers. No part of analyst compensation was, is, or will be, directly or indirectly,related to the specific recommendations or views expressed in this research For a list of companies mentioned in this report with whom S&P Capital IQ and/orreport. one of its affiliates has had business relationships within the past year, please go to: http://www.standardandpoors.com/products-S&P Global Quantitative services/articles/en/us/?assetID=1245187982940Recommendations Distribution DisclaimersIn EuropeAs of December 31, 2011, Standard & Poor’s Quantitative Services Europe With respect to reports issued to clients in Japan and in the case of inconsistenciesrecommended 50.7% of issuers with buy recommendations, 18.5% with hold between the English and Japanese version of a report, the English version prevails.recommendations and 30.8% with sell recommendations. With respect to reports issued to clients in German and in the case of inconsistencies between the English and German version of a report, the EnglishIn Asia version prevails. Neither S&P Capital IQ nor its affiliates guarantee the accuracy ofAs of December 31, 2011, Standard & Poor’s Quantitative Services Asia the translation. Assumptions, opinions and estimates constitute our judgment as ofrecommended 47.6% of issuers with buy recommendations, 21.9% with hold the date of this material and are subject to change without notice. Past performancerecommendations and 30.5% with sell recommendations. is not necessarily indicative of future results.Globally S&P Capital IQ, its affiliates, and any third-party providers, as well as their directors,As of December 31, 2011, Standard & Poor’s Quantitative Services globally officers, shareholders, employees or agents (collectively S&P Parties) do notrecommended 48.7% of issuers with buy recommendations, 20.7% with hold guarantee the accuracy, completeness or adequacy of this material, and S&Precommendations and 30.6% with sell recommendations Parties shall have no liability for any errors, omissions, or interruptions therein,Additional information is available upon request. regardless of the cause, or for the results obtained from the use of the information provided by the S&P Parties. 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  5. 5. April 3 , 2012 Global Strat egysuitability of any security. Standard & Poor’s does not act as a fiduciary. While For residents of the Philippines - The securities being offered or sold have not beenStandard & Poor’s has obtained information from sources it believes to be reliable, registered with the Securities and Exchange Commission under the Securities 5Standard & Poor’s does not perform an audit and undertakes no duty of due Regulation Code of the Philippines. Any future offer or sale thereof is subject todiligence or independent verification of any information it receives. registration requirements under the Code unless such offer or sale qualifies as anS&P Capital IQ keeps certain activities of its business units separate from each other exempt transaction.in order to preserve the independence and objectivity of their respective activities. 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