In this briefing:
- PRM: Thai Largest Tanker Fleets Assured of Consistent Growth
- New J. Hutton Exploration Report (Week Ending 22/02/19)
- MODEC: Add
- Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited
- CSE Global: Gaining Momentum
1. PRM: Thai Largest Tanker Fleets Assured of Consistent Growth
We initiate coverage of PRM with a BUY rating, based on a target price of Bt7.70, derived from a PEG ratio of 0.9x, which is the average for the Asia ex-japan transportation sector, implying 22.0x PE’19E.
The story:
- Secured revenue from domestic trading business
- IMO 2020 implementation to propel floating storage demand
- Recovery in T/C rate should prompt international trading turnaround
Risks: Lower-than-expected domestic oil consumption and trading activities in ASEAN, foreign currency and fuel cost fluctuations
2. New J. Hutton Exploration Report (Week Ending 22/02/19)
- Azumah Resources (AZM AU) rated a Speculative BUY
- 99.5m at 2.2g/t Au complements ‘discovery hole’ (75m above) – 93.1m at 2.3g/t Au
- DDHs from current programme targeting down-dip from existing intercepts
- Key drill results expected over next few weeks
- 1Moz Reserve, 2.5Moz Resource
- US$1,77M NPV5%, 1.6yr payback.
- US$886/oz AISC (all-in sustaining cost)
- Azumah Resources (AZM AU) , Emmerson Resources (ERM AU), Xanadu Mines (XAM AU), Kingston Resources (KSN AU), Oklo Resources (OKU AU), Blackham Resources (BLK AU), Dacian Gold Ltd (DCN AU), De Grey Mining (DEG AU), Austar Gold (AUL AU), Strategic Minerals PLC (SML LN), Asiamet Resources Ltd (ARS LN), Landore Resources Ltd (LND LN)
3. MODEC: Add
Towards the end of 2018 Modec Inc (6269 JP)‘s share price dropped 46.5% as the price of crude oil also cratered, falling 44.4% . Since that plunge, the stock price has rebounded 53.9% as the company posted excellent results at 4Q and guidance, while conservative, was for continued healthy earnings.
Having visited the company today, we believe earnings should continue to be strong and actually strengthen over the next few years with MODEC likely to start running into capacity constraints over the course of this year.
4. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited
Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.
But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.
Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.
If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.
5. CSE Global: Gaining Momentum
- Investors who have bought CSE Global on dips since my last note would have profited ~18%.
- The upbeat guidance by management and supply-demand environment should give some legs to the recent rebound.
- While risks of slower global growth may weigh on the stock, the stock is trading below its five-year average PE despite significantly improved cash flow from operations and a healthy order intake (three-year high).
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