O&G bulls who bought these SG stocks might have overlooked some factors
Local investors looked at rising oil prices and thought they could buy into these ‘recovering’ SGX-listed Oil & Gas companies Keppel Corp., Sembcorp. Industries and Sembmarine. I think buyers really jumped the gun and into the wrong companies. Their motivation:
- Believe that there is an oil recovery.
- Keppel Corp. and Sembmarine are leading international rig builders that would benefit from oil recovery. Sembcorp Ind. is the parent of Sembmarine and thrown into the same basket by association.
- All three are blue chips (they are component stocks in the Straits Times Index) and perceived to be safe.
- They are perceived to be cheap compared to their tops between 2011 – 2012.
If investors looked deeper especially into charts, there would be a very different picture.
1. All three stocks should not be overly simplified as oil and gas companies
Shareinv.com describes their business in 2015 as:
- Keppel Corp. (BN4.SG) - [FY15 Turnover] Offshore & marine (O&M) (60.6%), infrastruc (20%), ppty (18.7%), invs (0.7%).
- Sembcorp Ind. (U96.SG) - Primarily engaged in the production and supply of utilities services. [FY15 Turnover] Marine (52%), Utilities (44.3%), Others/Corp (3.6%), Urban Development (0.1%).
- Sembmarine (S51.SG) - Co is a leading global marine & offshore engineering group. [FY14 Turnover] Ship & rig repair, bldg, conversion & offshore (98.7%), ship chartering (0.9%), others (0.4%).
Keppel Corp. and Sembcorp Ind. are diverse entities. At best they might be described as companies with a big component of revenue from engineering activities in the offshore and marine (serving oil and gas no doubt but positive revenue-correlation to oil and gas price?? by a long shot only). Sembmarine might have a much closer linkage to oil and gas than the other two by being a prominent rig builder. I can see Sembmarine stock price as being somehow influenced by new rig count. Maybe, There is also a positive correlation between stock and oil price if we consider their trend as well as tops and bottoms. I think that influence by oil price exists but only by a long shot.
2. If there is an oil price recovery at all, it hasn’t benefitted these 3
- YTD, WTI is up 11.45% from the year opening.
USOIL (WTI) weekly chart 2014 – present
- Keppel Corp. opened trading on 04 January 2016 at $6.56. Last Friday 05 August, it closed the week at $5.2 losing 20.7% year to date.
- Sembcorp Ind. opened trading at $3.07. Last week it closed $2.67 losing 13% YTD.
- Sembmarine opened trading at $1.77. Last week it closed $1.325 losing 25.1% YTD.
Note my wording ‘If there is an oil price recovery at all’ because this is also uncertain.
3. All 3 stocks did not show any technical reversal
- New 52-week low, absence of new 52-week high.
- No visible bullish reversal pattern such as W, VVV.
- All showing signs of resistance, continued reaction to 26-week exponential moving average that is still pointing down. WTI as at least terminated this resistance since April.
- At least WTI printed a golden cross between 13-week and 26-week ema. Such a signal did not appear in all 3 stocks.
- Keppel was trading in the red for the entire 2016 ytd. Sembcorp and Sembmarine were only positive very briefly.
At the minimum, a truly recovering stock sought after by investors should at least trade in the green.
Keppel Corp weekly chart 2014 – present
Sembcorp weekly chart 2014 – present
Sembmarine weekly chart 2014 – present
Any reason to buy?
In my opinion, charts provide the best indication of the health of a stock. Forget about headlines – these have very short lifespans and they are not driven by the same considerations as stock investing. There are too many buy-side analysis reports and not enough sell-side for a fair appraisal. Stock prices don’t lie because they represent consensus from the market with real money at stake. Anyone can get a stock chart that is updated daily so timeliness is not an issue.
In the case of Swiber, an energy services business (BGK.SG) that had to wind up because of oil slump, it’s chart would not justify a buy decision. In the case of Keppel, Sembcorp and Sembmarine, their charts are shouting ‘trend continuation’. There is absolutely no technical reason to buy at all.
Here’s an interesting article on Swiber for your reading pleasure – ‘DBS was selling Leveraged Swiber Bonds to Clients – 3 Takeaways from this Case Study‘. It is a negative demonstration of faith-based, advice-based, reputation-based investing rather than taking-personal-responsbility/person-action, investigating-based sort of investing.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."