Asia Oil & Gas Positioning for 2014
Comment of the Day

December 03 2013

Commentary by Eoin Treacy

Asia Oil & Gas Positioning for 2014

Thanks to a subscriber for this interesting report from Deutsche Bank which may be of interest to subscribers. Here is a section:

DB Analyst John Hirjee sees no reason for change as his top pick for 2014 Oil Search was our best performer in 2013. John expects significant production and EPS growth (2014-15) due to the commissioning (2H14e) of the PNG-LNG project. DB Analyst Harshad Katkar similarly sees no reason to change as his top pick for 2014 Reliance Industries was also his top pick in 2013. Harshad is looking for an improving upstream gas business on KGD6 and chemical capacity expansions (FY14-16e) to drive ~15% EPS growth over the coming few years. DB Analyst Shawn Park has our call on Asia Chemicals and recently (01 Nov) upgraded the sector to overweight on the back of flat to down naphtha prices, tighter product supplies and higher spreads. Shawn¡¯s top pick for 2014 is LG Chemicals given its material exposure to ABS (25% revenues) and an improving EV battery business. DB Analyst, David Hurd continues to like Sinopec (SNP) as a top pick for 2014. David notes that soft to down oil prices support SNP¡¯s refining business and that there is material operating leverage in the company¡¯s chemical business.

Eoin Treacy's view

Here is a link to the associated report. 

While the revolution in US supply continues to garner investor attention, Asia¡¯s demand growth continues to represent one of the more promising avenues for major oil companies. One of the greatest challenges in the region from the perspective of an investor is represented by regional government policy to cap prices for consumers. As these policies are gradually liberalised, it should be positive for the sector and this is likely to continue to represent a catalyst to ignite interest in related shares.

India's Reliance Industries has been a serial laggard within its domestic market, not least because of government interference in the energy sector. The share has been ranging with a mild upward bias for 18-month and a break in the progression of higher reaction lows would be required to question potential for higher to lateral ranging.

China's Sinopec encountered resistance last week in the region of the upper side of its almost 3-year range. A sustained move above HK$7 would be required to reassert medium-term demand dominance.

Australia's Oil Search continues to hold a progression of higher reaction lows and found support this week in the region of the progression of higher reaction lows. A sustained move below AU$7.50 would be required to question medium-term potential for additional upside. 

South Korea's LG Chem will need to break the medium-term progression of lower rally highs to suggest a return to medium-term demand dominance. 


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