Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

President Trump has coordinated a global crude-oil production-restraint deal among OPEC (led by Saudi Arabia), Russia and other major producers (implicitly including the US), ending the Saudi-Russian price war that had briefly taken the Brent crude price below US$25/bbl and WTI to US$20/bbl (at the end of March 2020). At a minimum, this largest-ever crude output-reduction deal should ensure that Brent finds a sustained trough at US$25/bbl, likely settling closer to US$40/bbl -- still a third below prices that prevailed until two months ago. Global oil demand is slated to decline about 30% (from the 2019 consumption level of 100.1 million barrels per day, mmbd) in 2Q 2020. The deal agreed over the past 3 days will take 9.7 mmbd of OPEC supply off the market in May and June, 7.7m barrels/day for the rest of 2020, and 5.8m barrels/day in Jan-Apr 2021. The key hope is that lower prices will reduce US and Canadian production by 3 and 1 mmbd respectively, with marginal shale and oil-sands producers forced out of the market. Major G20 oil consumers like the US, China, Japan, India and South Korea are expected to add their heft to the deal by buying crude for their strategic petroleum reserves. We estimate (based on US EIA forecast assumptions) that, even after this agreement, global excess inventories will likely be close to 5 million barrels/day in 1H 2020 -- a massive overhang. Currently, massive excess oil inventories exist on tankers across the world, with the latest fortnight being the worst phase of the Covid-induced sudden stop in aviation and petrol (gasoline) use. Any durable stabilization of oil markets requires key global sources of oil demand -- the US, China, India, Japan -- to return to post-Covid normalcy. The US, slow to impose a nationwide lockdown, now appears unlikely to be able to resume economic activity before mid-June 2020. China's industrial and real-estate over-capacity will constrain its ability to ramp up production amid a slump in global demand. Near-term, Brent is thus likely to be closer to US$30/barrel, rising toward US$40/barrel only by mid-June. That stabilization of prices, however, will bolster the viability of non-OPEC production (including in net importers like China and India), lending some economic stability to the global oil complex. With Brent still remaining in a low-price equilibrium (about a third below prices that prevailed until mid-February 2020), the outcome will likely remain positive for the global economy and markets -- low enough to facilitate a gradual economic recovery in 2H 2020, but not so low as to induce massive bankruptcies among oil companies.

President Trump has coordinated a global crude-oil production-restraint deal among OPEC (led by Saudi Arabia), Russia and other major producers (implicitly including the US), ending the Saudi-Russian price war that had briefly taken the Brent crude price below US$25/bbl and WTI to US$20/bbl (at the end of March 2020). At a minimum, this largest-ever crude output-reduction deal should ensure that Brent finds a sustained trough at US$25/bbl, likely settling closer to US$40/bbl -- still a third below prices that prevailed until two months ago. Global oil demand is slated to decline about 30% (from the 2019 consumption level of 100.1 million barrels per day, mmbd) in 2Q 2020. The deal agreed over the past 3 days will take 9.7 mmbd of OPEC supply off the market in May and June, 7.7m barrels/day for the rest of 2020, and 5.8m barrels/day in Jan-Apr 2021. The key hope is that lower prices will reduce US and Canadian production by 3 and 1 mmbd respectively, with marginal shale and oil-sands producers forced out of the market. Major G20 oil consumers like the US, China, Japan, India and South Korea are expected to add their heft to the deal by buying crude for their strategic petroleum reserves. We estimate (based on US EIA forecast assumptions) that, even after this agreement, global excess inventories will likely be close to 5 million barrels/day in 1H 2020 -- a massive overhang. Currently, massive excess oil inventories exist on tankers across the world, with the latest fortnight being the worst phase of the Covid-induced sudden stop in aviation and petrol (gasoline) use. Any durable stabilization of oil markets requires key global sources of oil demand -- the US, China, India, Japan -- to return to post-Covid normalcy. The US, slow to impose a nationwide lockdown, now appears unlikely to be able to resume economic activity before mid-June 2020. China's industrial and real-estate over-capacity will constrain its ability to ramp up production amid a slump in global demand. Near-term, Brent is thus likely to be closer to US$30/barrel, rising toward US$40/barrel only by mid-June. That stabilization of prices, however, will bolster the viability of non-OPEC production (including in net importers like China and India), lending some economic stability to the global oil complex. With Brent still remaining in a low-price equilibrium (about a third below prices that prevailed until mid-February 2020), the outcome will likely remain positive for the global economy and markets -- low enough to facilitate a gradual economic recovery in 2H 2020, but not so low as to induce massive bankruptcies among oil companies.   

Trump Orchestrates an OPEC+ Production Cut with G20 Backing: Crude to Stay Low

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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 <img src='https://api2.sgx.com/sites/default/files/2020-03/CSE%20Global%20CEO.png' alt='CSE Global Ceo' />
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 <div class='content-caption'>CSE Global Ceo</div>
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Systematic and detail-oriented by nature, Lim Boon Kheng appears to have found his calling in building enterprises. 
"My passion has always been to take a home-grown business and develop it into a multi-national company of decent size, with diversified revenues and good cashflows - one that can be sustained for many years," the Chief Executive Officer of SGX-listed IT systems integrator CSE Global Ltd said with a smile. 
"CSE started as a Singapore company. Our goal is to continue growing as a global organisation with predominantly non-Singapore revenue streams," Lim added. 
"I'm the third CEO of this organisation, and after me, there will be a fourth, fifth, or sixth. What's important is to lay the right foundation during my time so that my successors can take the business to the next stage." 
Lim, a Bachelor of Accountancy graduate from the National University of Singapore, joined CSE in 1999 as Group Financial Controller, after holding accounting positions with two other organisations. He was promoted to CSE's Group Managing Director and CEO in 2014. 
CSE began operations in 1985 as the engineering projects division of Chartered Electronics Industries, the electronics arm of the Singapore Technologies (ST) Group. It started building a regional footprint between 1992 and 1995, before undergoing a management buy-out in 1997, and was renamed CSE Systems &amp; Engineering Pte Ltd. 
In 1999, CSE Global made its trading debut on the then-Sesdaq second board. A year later, the Group embarked on its international expansion, acquiring companies in US, UK, Australia and Singapore, before transferring to SGX Mainboard. 
Today, the Group has more than 1,500 employees worldwide, with a network of 41 offices spanning the globe, and generates over 85% of its revenues outside the domestic market. 
It focuses on providing and installing a variety of control systems, as well as turnkey telecommunication network and security solutions, for the Oil &amp; Gas, Infrastructure and Mining industries.

Reaping the Rewards 
The Group services large, independent oil majors like BP, Shell, Exxon and Chevron, as well as national oil corporations such as Indonesia's Pertamina and Malaysia's Petronas. It derives more than 65% of revenues from the O&amp;G segment, with more than 90% of customers coming from the US. On the infrastructure side, clients include government agencies, utilities, ports, railways and airports. 
Over the last few years, CSE Global has extensively restructured its O&amp;G operations to focus on the Americas, jettisoning projects in the Middle East, Africa and Southeast Asia, which were plagued by severe price competition. 
"Although we're a small player, we were able to build good relationships with our O&amp;G customers over the years," Lim noted. 
"Previously, when oil prices were depressed and the industry was facing mounting challenges, any supplier that was prepared to invest time and effort to service clients - like we did - reaped the benefits," he added. "As a result, we were able to pick up market share." 
The industry's downturn and subsequent consolidation then also provided CSE with opportunities. "Through selective acquisitions, and by bringing in new talent from established operators and suppliers that downsized, our skillsets are much wider now than before," he noted. 
Those strategies are still relevant now, with crude prices hovering at four-year lows below US$30 a barrel. Global fuel demand has been hammered as many governments lock down their economies in a bid to curb the COVID-19 pandemic. 
"With the current decline in oil price, we now expect a lower order intake in the coming months as compared to the start of the year. Nonetheless, we intend to expand our market share over the next two to three years - especially in the US," Lim said. 
"Yes, there's gloom and doom in the O&amp;G sector, but we remain pretty optimistic about the medium-term outlook." 
CSE Global's infrastructure division - which accounts for more than 25% of overall sales - is witnessing a steady flow of orders for the next three to five years in Australia and Singapore. 
"There are constant requirements by these two governments to improve their infrastructure, whether for ports, railways, airports, power grids, or in Singapore's case - Smart Nation digital transformation initiatives," Lim said. 
"As a result, our infrastructure division will help to diversify the Group's revenue sources." 
Its Mining division, however, continues to face slower sales, as the sector remains in the doldrums amidst a protracted recovery. 
"Cyclical upgrades still need to be done - after all, systems do wear out and break down, while technologies and software have to be upgraded," he noted. 
"For some mining companies, capex and opex have been delayed for the past 24 to 36 months to the point where these upgrades are now inevitable. Hence, we expect some return to normalcy in terms of spending by clients in this sector." 
Order book-wise, CSE Global now has the highest order backlog in five years - standing at S$307.3 million as at 31 December 2019, up 70.5% year-on-year, supplemented in part by recent earnings-accretive acquisitions.

Strategy U-Turn 
So far, the coronavirus outbreak has not dealt a huge blow to the Group's operations, Lim said. 
"As more travel bans come into play and business continuity plans are activated on a large scale, it may affect our productivity and ability to service projects across jurisdictions," he added. 
"But the Group's business model of maintaining local teams in our markets will mitigate this issue to a large extent." 
Meanwhile, CSE Global will continue to beef up its geographical presence and technology offerings through acquisitions. In 2019, the Group spent more than S$60 million to buy four companies that boosted its service capabilities in the energy and mining industries. 
"We want to acquire companies with complementary solutions and services that will extend our range of offerings in the value chain and strengthen our local presence in those markets," Lim noted. 
"The target business usually needs to be earnings-accretive and generate good cashflows. Each year, we're looking to close between two and three acquisitions, depending on opportunities." 
Looking back, Lim attributes CSE Global's stronger fundamentals to a reversal of direction he implemented five years ago after taking the helm. 
"When the O&amp;G and mining industries were in their boom years, CSE Global became very focused on large projects at the expense of smaller ones. But I wanted a combination of both, and when I took over, we changed course and started to take on more small projects," Lim recalled. 
That decision delivered handsome rewards - 2019 revenue hit an all-time high of S$451.8 million, up 21% year-on-year, while full-year net profit jumped 19.6% to S$24.1 million. "If we had concentrated only on large projects, it might have had disastrous results," he admitted. 
"It was our small projects that saved the day - they boosted our cashflows, were faster to turn around and easier to manage. That's why it's critical that we do not just depend on any single engine of growth." 
Cash is always king, and even more so now with prevailing challenges in the industry. The Group ended 2019 with cash and bank balances of S$58.6 million. 
"Cashflows are the lifeblood of our organisation, which is why our strategies are focused on cash-generation and cost controls," he added. 
And when the 54-year-old is not strategising for the Group, he is spending time with his two sons and two daughters, aged five to 18. Family activities include eating, discussions over homework, and playing chauffeur to the kids. 
"I always impress upon my children the value of discipline and hard work," Lim noted. 
"In this life, nothing is given to you - you must work for what you want. Although that doesn't necessarily guarantee success, you still need to work hard, and then leave the rest to God."

CSE Global Ltd

Listed on Singapore Exchange since 1999, CSE Global is a global technologies company with an international presence spanning the Americas, Asia Pacific, Europe, Middle East and Africa. The Group has now more than 1,500 employees worldwide, and operates a network of 41 offices across the globe, generating more than 85% of its revenues outside its home market. The CSE Group of companies has been very successful in offering cost-effective, totally integrated solutions to industries in the Oil &amp; Gas, Infrastructure and Mining sectors. 
The company website is: <a href="http://edm.sgx.com/a/hBedCOmB86%24MfB91dB5AAAAAAcA/link7">www.cse-global.com</a>.

Click <a href="http://edm.sgx.com/a/hBedCOmB86%24MfB91dB5AAAAAAcA/link8">here</a> for the company's StockFacts page.

For the three months ended 31 December 2019 financial results, click <a href="http://edm.sgx.com/a/hBedCOmB86%24MfB91dB5AAAAAAcA/link9">here</a>
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    CSE Global Ceo


Systematic and detail-oriented by nature, Lim Boon Kheng appears to have found his calling in building enterprises.  
"My passion has always been to take a home-grown business and develop it into a multi-national company of decent size, with diversified revenues and good cashflows - one that can be sustained for many years," the Chief Executive Officer of SGX-listed IT systems integrator CSE Global Ltd said with a smile.  
"CSE started as a Singapore company. Our goal is to continue growing as a global organisation with predominantly non-Singapore revenue streams," Lim added.  
"I'm the third CEO of this organisation, and after me, there will be a fourth, fifth, or sixth. What's important is to lay the right foundation during my time so that my successors can take the business to the next stage."  
Lim, a Bachelor of Accountancy graduate from the National University of Singapore, joined CSE in 1999 as Group Financial Controller, after holding accounting positions with two other organisations. He was promoted to CSE's Group Managing Director and CEO in 2014.  
CSE began operations in 1985 as the engineering projects division of Chartered Electronics Industries, the electronics arm of the Singapore Technologies (ST) Group. It started building a regional footprint between 1992 and 1995, before undergoing a management buy-out in 1997, and was renamed CSE Systems &amp; Engineering Pte Ltd.  
In 1999, CSE Global made its trading debut on the then-Sesdaq second board. A year later, the Group embarked on its international expansion, acquiring companies in US, UK, Australia and Singapore, before transferring to SGX Mainboard.  
Today, the Group has more than 1,500 employees worldwide, with a network of 41 offices spanning the globe, and generates over 85% of its revenues outside the domestic market.  
It focuses on providing and installing a variety of control systems, as well as turnkey telecommunication network and security solutions, for the Oil &amp; Gas, Infrastructure and Mining industries.

Reaping the Rewards  
The Group services large, independent oil majors like BP, Shell, Exxon and Chevron, as well as national oil corporations such as Indonesia's Pertamina and Malaysia's Petronas. It derives more than 65% of revenues from the O&amp;G segment, with more than 90% of customers coming from the US. On the infrastructure side, clients include government agencies, utilities, ports, railways and airports.  
Over the last few years, CSE Global has extensively restructured its O&amp;G operations to focus on the Americas, jettisoning projects in the Middle East, Africa and Southeast Asia, which were plagued by severe price competition.  
"Although we're a small player, we were able to build good relationships with our O&amp;G customers over the years," Lim noted.  
"Previously, when oil prices were depressed and the industry was facing mounting challenges, any supplier that was prepared to invest time and effort to service clients - like we did - reaped the benefits," he added. "As a result, we were able to pick up market share."  
The industry's downturn and subsequent consolidation then also provided CSE with opportunities. "Through selective acquisitions, and by bringing in new talent from established operators and suppliers that downsized, our skillsets are much wider now than before," he noted.  
Those strategies are still relevant now, with crude prices hovering at four-year lows below US$30 a barrel. Global fuel demand has been hammered as many governments lock down their economies in a bid to curb the COVID-19 pandemic.  
"With the current decline in oil price, we now expect a lower order intake in the coming months as compared to the start of the year. Nonetheless, we intend to expand our market share over the next two to three years - especially in the US," Lim said.  
"Yes, there's gloom and doom in the O&amp;G sector, but we remain pretty optimistic about the medium-term outlook."  
CSE Global's infrastructure division - which accounts for more than 25% of overall sales - is witnessing a steady flow of orders for the next three to five years in Australia and Singapore.  
"There are constant requirements by these two governments to improve their infrastructure, whether for ports, railways, airports, power grids, or in Singapore's case - Smart Nation digital transformation initiatives," Lim said.  
"As a result, our infrastructure division will help to diversify the Group's revenue sources."  
Its Mining division, however, continues to face slower sales, as the sector remains in the doldrums amidst a protracted recovery.  
"Cyclical upgrades still need to be done - after all, systems do wear out and break down, while technologies and software have to be upgraded," he noted.  
"For some mining companies, capex and opex have been delayed for the past 24 to 36 months to the point where these upgrades are now inevitable. Hence, we expect some return to normalcy in terms of spending by clients in this sector."  
Order book-wise, CSE Global now has the highest order backlog in five years - standing at S$307.3 million as at 31 December 2019, up 70.5% year-on-year, supplemented in part by recent earnings-accretive acquisitions.

Strategy U-Turn  
So far, the coronavirus outbreak has not dealt a huge blow to the Group's operations, Lim said.  
"As more travel bans come into play and business continuity plans are activated on a large scale, it may affect our productivity and ability to service projects across jurisdictions," he added.  
"But the Group's business model of maintaining local teams in our markets will mitigate this issue to a large extent."  
Meanwhile, CSE Global will continue to beef up its geographical presence and technology offerings through acquisitions. In 2019, the Group spent more than S$60 million to buy four companies that boosted its service capabilities in the energy and mining industries.  
"We want to acquire companies with complementary solutions and services that will extend our range of offerings in the value chain and strengthen our local presence in those markets," Lim noted.  
"The target business usually needs to be earnings-accretive and generate good cashflows. Each year, we're looking to close between two and three acquisitions, depending on opportunities."  
Looking back, Lim attributes CSE Global's stronger fundamentals to a reversal of direction he implemented five years ago after taking the helm.  
"When the O&amp;G and mining industries were in their boom years, CSE Global became very focused on large projects at the expense of smaller ones. But I wanted a combination of both, and when I took over, we changed course and started to take on more small projects," Lim recalled.  
That decision delivered handsome rewards - 2019 revenue hit an all-time high of S$451.8 million, up 21% year-on-year, while full-year net profit jumped 19.6% to S$24.1 million. "If we had concentrated only on large projects, it might have had disastrous results," he admitted.  
"It was our small projects that saved the day - they boosted our cashflows, were faster to turn around and easier to manage. That's why it's critical that we do not just depend on any single engine of growth."  
Cash is always king, and even more so now with prevailing challenges in the industry. The Group ended 2019 with cash and bank balances of S$58.6 million.  
"Cashflows are the lifeblood of our organisation, which is why our strategies are focused on cash-generation and cost controls," he added.  
And when the 54-year-old is not strategising for the Group, he is spending time with his two sons and two daughters, aged five to 18. Family activities include eating, discussions over homework, and playing chauffeur to the kids.  
"I always impress upon my children the value of discipline and hard work," Lim noted.  
"In this life, nothing is given to you - you must work for what you want. Although that doesn't necessarily guarantee success, you still need to work hard, and then leave the rest to God."

CSE Global Ltd

Listed on Singapore Exchange since 1999, CSE Global is a global technologies company with an international presence spanning the Americas, Asia Pacific, Europe, Middle East and Africa. The Group has now more than 1,500 employees worldwide, and operates a network of 41 offices across the globe, generating more than 85% of its revenues outside its home market. The CSE Group of companies has been very successful in offering cost-effective, totally integrated solutions to industries in the Oil &amp; Gas, Infrastructure and Mining sectors. 
The company website is: www.cse-global.com.

Click here for the company's StockFacts page.

For the three months ended 31 December 2019 financial results, click here



Alpha-Centric ESG Research

Kyle Rudden

To date, my Smartkarma research has focused on big-picture ESG themes. Previous Insights covered specific stocks in a thematic context, but I figured it's about time I start publishing stock-specific ESG reports. What better place to start than the planet's largest fossil fuel company. Go big, or go home.<a href="https://www.smartkarma.com/entities/saudi-aramco" target="_blank" data-smartkarma-citation="entities:27317:1" rel="noopener">Saudi Aramco (ARAMCO AB)</a>.Most profitable company in the world. Bigger than Apple and Amazon combined. The two trillion-dollar IPO. Like an asset class all its own. Oil so cheap it'll pump the last drop. Climate change?Swallow the bull hype with an ESG pill, however, and something else comes out the other end.It's not you Aramco, it's ESG. In any traditional oil stock analysis, Aramco absolutely shines. But as soon as you start looking at Aramco through an ESG lens, that shine comes off in a hurry.Aramco's ESG case is one of cruel irony. Its greatest assets become massive liabilities in the face of climate change, environmental activism, and the global transition away from fossil fuels.No big deal, Aramco would say. It is reinventing (or at the least, re-branding) itself, and expects to come out on top of the climate mess. Time will tell, but it isn't yet enough to away ESG opinions.Despite all that, my Aramco ESG analysis is quite balanced, and some of it might even surprise you.For most ESG investors, the party line opinion is that Aramco is a carbon belching monster making piles of money for a select few, and at the profound expense of the planet and the rest of us.<s>People</s>, <s>Planet</s>, <s>and</s> Profit.To me, that naïve knee-jerk consensus view is shortsighted. Yes, there is truth to it, and Aramco is a highly-contentious ESG story for good reason. But it's also a complex ESG story, and not all bad.Ultimately my bearish ESG-driven imperative is based on: 1) a balanced and objective assessment of Aramco's ESG profile, and 2) the fact that for most ESG investors Aramco is a resounding "no."For Aramco, that imperative – a foregone conclusion, really – matters less than its underlying ESG analysis since Aramco exemplifies two related points (slightly contrarian) that I make about ESG:<ol>
<li>
Directionality: Improvements (or deterioration) in ESG performance are important, and often get overlooked. While trends won't necessarily offset a company's current ESG status, they're a valuable "signal" and should be considered in any ESG analysis. This is very relevant to Aramco.</li>
<li>
Controllability: Also important is differentiating between what is and isn't under the control of management (e.g., a common challenge in ESG is dealing with "legacy" issues). That notion applies to ESG concerns directly related to Saudi Arabia, but only indirectly related to Aramco.</li>
</ol><div class="content-highlight">I have said this before, but it's worth repeating. Smartkarma cultivates a wonderful diversity of expertise and perspectives. Multiple analysts can cover a company or topic from different yet complementary angles. Sector analysts, regional experts, vertical specialists. It's a value-add that is hard to achieve with the sell-side's guarded fiefdoms. So this ESG take on Aramco should be considered alongside coverage by <a href="https://www.smartkarma.com/profiles/mark-artherton-cfa" target="_blank" data-smartkarma-citation="accounts:7528" rel="noopener">Mark Artherton, CFA</a>, <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a>, and others.</div>

 To date, my Smartkarma research has focused on big-picture ESG themes. Previous Insights covered specific stocks in a thematic context, but I figured it's about time I start publishing stock-specific ESG reports. What better place to start than the planet's largest fossil fuel company. Go big, or go home.Saudi Aramco (ARAMCO AB).Most profitable company in the world. Bigger than Apple and Amazon combined. The two trillion-dollar IPO. Like an asset class all its own. Oil so cheap it'll pump the last drop. Climate change?Swallow the bull hype with an ESG pill, however, and something else comes out the other end.It's not you Aramco, it's ESG. In any traditional oil stock analysis, Aramco absolutely shines. But as soon as you start looking at Aramco through an ESG lens, that shine comes off in a hurry.Aramco's ESG case is one of cruel irony. Its greatest assets become massive liabilities in the face of climate change, environmental activism, and the global transition away from fossil fuels.No big deal, Aramco would say. It is reinventing (or at the least, re-branding) itself, and expects to come out on top of the climate mess. Time will tell, but it isn't yet enough to away ESG opinions.Despite all that, my Aramco ESG analysis is quite balanced, and some of it might even surprise you.For most ESG investors, the party line opinion is that Aramco is a carbon belching monster making piles of money for a select few, and at the profound expense of the planet and the rest of us.People, Planet, and Profit.To me, that naïve knee-jerk consensus view is shortsighted. Yes, there is truth to it, and Aramco is a highly-contentious ESG story for good reason. But it's also a complex ESG story, and not all bad.Ultimately my bearish ESG-driven imperative is based on: 1) a balanced and objective assessment of Aramco's ESG profile, and 2) the fact that for most ESG investors Aramco is a resounding "no."For Aramco, that imperative – a foregone conclusion, really – matters less than its underlying ESG analysis since Aramco exemplifies two related points (slightly contrarian) that I make about ESG:

Directionality: Improvements (or deterioration) in ESG performance are important, and often get overlooked. While trends won't necessarily offset a company's current ESG status, they're a valuable "signal" and should be considered in any ESG analysis. This is very relevant to Aramco.

Controllability: Also important is differentiating between what is and isn't under the control of management (e.g., a common challenge in ESG is dealing with "legacy" issues). That notion applies to ESG concerns directly related to Saudi Arabia, but only indirectly related to Aramco.
I have said this before, but it's worth repeating. Smartkarma cultivates a wonderful diversity of expertise and perspectives. Multiple analysts can cover a company or topic from different yet complementary angles. Sector analysts, regional experts, vertical specialists. It's a value-add that is hard to achieve with the sell-side's guarded fiefdoms. So this ESG take on Aramco should be considered alongside coverage by Mark Artherton, CFA, Travis Lundy, and others.

Saudi Aramco and ESG: When Assets Become Liabilities

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Saudi Aramco is the world’s largest integrated oil &amp; gas company and according to the company, it produces one in every eight barrels of crude oil globally. Aramco produces 13.6m barrels per day of oil equivalent, of which 10.3m barrels per day are crude oil including blended condensate. The company on Sunday announced its indicative price range for the IPO which gives an implied valuation of around USD1,660bn at the midpoint of the price range. The Saudi Arabian Kingdom initially sought a valuation of about USD2trn, however, the international investors have remained less interested in the IPO due to lower oil prices and geopolitical risks associated with investing in the company.This insight focuses on the company’s valuation where we have attempted to value the company using different approaches. Though the company’s Implied EV/Barrel of Proved Oil Reserve is at a steep discount to large integrated oil peers, our cashflow based valuation indicates that the stock is overvalued at the indicative target price for the IPO. Furthermore, the Government of Saudi Arabia’s recent measures to reduce the royalty rate and the tax rate on Aramco’s earnings were aimed at boosting the company’s valuation prior to its IPO and the valuation remains sensitive to changes in these measures. At the current Brent price of around USD70 per barrel, we have valued the company at USD1.27trn, which is a 23% discount to the company’s implied valuation based on midpoint of its IPO range. At an assumed Brent Price of above USD100 per barrel, the valuation hits in excess of USD2trn, however, the tax and royalty regime is structured in a way that the government will benefit the most when oil price goes up.We discuss the details below.

Saudi Aramco is the world’s largest integrated oil &amp; gas company and according to the company, it produces one in every eight barrels of crude oil globally. Aramco produces 13.6m barrels per day of oil equivalent, of which 10.3m barrels per day are crude oil including blended condensate. The company on Sunday announced its indicative price range for the IPO which gives an implied valuation of around USD1,660bn at the midpoint of the price range. The Saudi Arabian Kingdom initially sought a valuation of about USD2trn, however, the international investors have remained less interested in the IPO due to lower oil prices and geopolitical risks associated with investing in the company.This insight focuses on the company’s valuation where we have attempted to value the company using different approaches. Though the company’s Implied EV/Barrel of Proved Oil Reserve is at a steep discount to large integrated oil peers, our cashflow based valuation indicates that the stock is overvalued at the indicative target price for the IPO. Furthermore, the Government of Saudi Arabia’s recent measures to reduce the royalty rate and the tax rate on Aramco’s earnings were aimed at boosting the company’s valuation prior to its IPO and the valuation remains sensitive to changes in these measures. At the current Brent price of around USD70 per barrel, we have valued the company at USD1.27trn, which is a 23% discount to the company’s implied valuation based on midpoint of its IPO range. At an assumed Brent Price of above USD100 per barrel, the valuation hits in excess of USD2trn, however, the tax and royalty regime is structured in a way that the government will benefit the most when oil price goes up.We discuss the details below.

Saudi Aramco IPO Valuation: Overambitious Expectations Lowered, the Discount Is Still Not Sufficient

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Aramco is coming to market with the IPO announced almost two weeks ago and pricing ranges due this Sunday. The big players will be oil majors and SWFs with China playing a big part. Below is an assessment of the major inputs and risks and breakdown of the risks to investors, specifically to major Chinese entities which would invest.

Aramco is coming to market with the IPO announced almost two weeks ago and pricing ranges due this Sunday. The big players will be oil majors and SWFs with China playing a big part. Below is an assessment of the major inputs and risks and breakdown of the risks to investors, specifically to major Chinese entities which would invest.

United States

Exxon Mobil Corporation operates petroleum and petrochemicals businesses on a worldwide basis.  The Company's operations include exploration and production of oil and gas, electric power generation, and coal and minerals operations. Exxon Mobil also manufactures and markets fuels, lubricants, and chemicals.

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Exxon Mobil (XOM US)

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Saudi Aramco IPO Valuation: Overambitious Expectations Lowered, the Discount Is Still Not Sufficient

Saudi Aramco is the world’s largest integrated oil & gas company and according to the company, it produces one in every eight barrels of crude...

Shifara Samsudeen, ACMA, CGMA

The Aramco IPO and China's Participation

Aramco is coming to market with the IPO announced almost two weeks ago and pricing ranges due this Sunday. The big players will be oil majors and...

Travis Lundy

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