In this briefing:
- Weekly Oil Views: OPEC Shrugs off Trump’s “Take It Easy” Tweet, but Crude Complies
- SGP: Ready for New Growth Cycle
- China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
- PRM: Thai Largest Tanker Fleets Assured of Consistent Growth
- New J. Hutton Exploration Report (Week Ending 22/02/19)
1. Weekly Oil Views: OPEC Shrugs off Trump’s “Take It Easy” Tweet, but Crude Complies
As stock-market watchers begin to pick “resistance levels” for benchmark equity indexes that have been steadily heading north amid optimism over a US-China trade deal, we wonder if Trump and his tweets are the barrier point for crude’s rally.
And if they are, what might the US president’s “pain threshold” be? For his latest shot across OPEC’s bow, it appeared to be Brent touching a three-month high just above $67/barrel.
OPEC shrugged off Trump’s gentle warning. Saudi Energy Minister and de facto leader of the oil exporters’ group, Khalid al-Falih, appeared smiling and relaxed when asked about Trump’s tweet in a CNBC interview. OPEC was indeed “taking it easy,” he said. The group and its non-OPEC collaborators were determined to rebalance the markets, but with a “very slow and measured approach,” Al-Falih said.
We believe OPEC will be careful not to over-tighten the market this time around. Perhaps Trump was being over-cautious. If a US-China trade deal is signed in the next few weeks (that may happen on March 27, The Wall Street Journal reported on Monday), global stock markets could rally further. But they will not take crude along for the entire ride.
Our Chart of the Week shows that the rebound of the past two months in global equities has already left crude’s recovery far behind. The divergence should not come as a surprise. Crude may have already priced in most of the economic impetus of a US-China trade rapprochement. Unlike the MSCI global stock market index, which is closing in on its early-October levels (before the start of the financial markets turmoil), crude is highly unlikely to get within sight of the four-year highs it touched on October 3, shortly before it hit the skids.
2. SGP: Ready for New Growth Cycle
We initiate coverage of SGP with a BUY rating and a 2019E target price of Bt14.00, derived from 10.9x PE’19E, which is +0.5 SD of its 3-year trading average. We believe that a new growth cycle is poised to act as a re-rating catalyst.
The story:
- Regional LPG player with upstream transportation network
- New businesses to drive new growth cycle
- LPG price set to bottom out
- Expected earnings to recover in 2019E
Risks:
Currency fluctuation
Raw material price fluctuation
Overseas investment failure
3. China Risun (中国旭阳) IPO Quick Note: Past the Peak of Coking Cycle
China Risun, a leading coking coal refining player in China, is seeking up to USD 243 million via a listing in Hong Kong. In this insight, we will discuss the following topics:
- Company’s business and the value chain of coking coal
- Industry backdrop of the coking coal processing industry in China
- Shareholders and investors
- Thoughts on valuation
4. 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
5. 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)
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