汇丰银行-全球-能源设备与服务行业-全球离岸OFS：没有几个地方可以躲避毫无生气的2020年-2019.11.27-22页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Bank plc View HSBC Global Research at:https:/ Following Q3 results season,we see little reason to change our cautious view on the offshore oil&gas space in 2020 Backlogs at highest levels seen since mid-2014 but offshore margin caution should taper earnings growth expectations Buy Saipem(TP up to EUR5.20)and TechnipFMC(TP cut to EUR21.8),Hold Subsea 7(TP up to NOK95)M&A may be back on the cards as we head into 2020:Despite a deep multi-year downturn,offshore OFS has not seen the M&A roll-up that was evident in the late 1990s and early 2000s.Recent news flow concerning Subsea 7 and Saipem(e.g.Bloomberg,15 November)have re-ignited market interest in the potential tie-ups as a way to rationalise chronic overcapacity in equipment and SURF vessels.Subsea 7 provides first glimpse of 2020 expectations:The SURF focussed player is pointing to 2019 as the low point in this cycles corporate profitability.While it expects both revenue and EBITDA to be up YoY in 2020,it has cautioned on the pace of margin recovery and also downgraded 2019 revenue expectations.Subsea margin recovery narrative hitting a bump in the road:Over Q3 results there have been several cautionary comments from companies regarding margin progression over the coming 12-24 months,including lower-margin backlogs and PLSV re-contracting risk.This is a topic we discussed recently in our report Subsea F9:Recalculating the recovery,15 October 2019.Whats left for the rest of 2019?A few more project sanctions and potentially a deal prospectus:Some offshore projects are in a holding pattern of sorts as OFS companies expect contracts to be awarded subject to formal sanction.We await FIDs for SNE,Mero II,Rovuma LNG and Nigeria LNG among others in Q4 2019/H1 2020.The process to kick-start TechnipFMCs proposed split into two separate entities may also fall in 2019,with a deal prospectus potentially being provided by year end.Investment views:Saipem continues to be our preferred offshore OFS stock largely due to its Onshore E&C exposure(order intake and margin recovery).Despite a cut to our TP,we remain Buyers of TechnipFMC following its de-rating in mid-October.Our view on Subsea 7 is unchanged;despite guiding to higher YoY revenue and EBITDA in 2020 we see a prolonged margin recovery and short-term offshore wind challenges.Offshore OFS:Summary of ratings and target prices Ticker Currency Current price _ TP _ _ Rating _ Implied upside/downside Company Old New Old New TechnipFMC FTI US USD 19.65 27.00 24.00 Buy Buy 22.1%TechnipFMC FTI FP EUR 17.61 24.60 21.80 Buy Buy 23.8%Saipem SPM IM EUR 4.28 5.15 5.20 Buy Buy 21.5%Subsea 7 SUBC NO NOK 99.06 90.00 95.00 Hold Hold-4.1%Note:Priced as of close at 21 November 2019.Source:Refinitiv Datastream,HSBC estimates 27 November 2019 Tarek Soliman*,CFA Analyst HSBC Bank plc +44 20 3268 5528 David Phillips*Head of Equity Research,Developed Europe HSBC Bank plc +44 20 7991 7558 Abhishek Kumar*Analyst HSBC Securities and Capital Markets(India)Private Limited abhishek.kumarhsbc.co.in+91 80 4555 2753 Anshak Singhal*Associate Bangalore *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Global Oilfield Services Equities Energy Equipment&Services Offshore OFS:fewer places to hide from a lacklustre 2020 Equities Energy Equipment&Services 27 November 2019 2 Inching along Revisiting some key questions for the subsea sector for 2020 We posed some important questions when thinking about the offshore OFS recovery ahead of the Q3 reporting period(see Subsea F9:Recalculating the recovery,15 October 2019)and in this report we briefly examine what we learned.Our focus is centred on three main issues:1.Could subsea/SURF order intake disappoint in 2020?2.When will the subsea/SURF market see price and margin recovery?3.Has the business model market share shift run its course?Progression of the subsea/offshore OFS value chain recovery Source:HSBC Digesting the recent data points on orders and margins,we continue to see a gradual recovery in offshore OFS,with our assumptions around the progression of the cycle becoming most visible in 2021(see page 6)where we differ from consensus earnings estimates by up to 30%.Whilst consensus estimates for 2020 have been downgraded over the course of H2 2019,double digit year-on-year increases in offshore orders(in USD)and EBITDA underpin market expectations that we think could be overambitious.The offsets to this mixed fundamental picture for subsea come from a relatively undemanding valuation picture(especially after the sector de-rating in the last 1-2 months),signs of stability in the(higher margin)subsea aftermarket,and a continuation of corporate activity,namely speculation of a potential Saipem-Subsea 7 merger(source:Bloomberg,15 November)and TechnipFMCs planned spin-off of its E&C business.This risk/reward balance supports our continued Buy ratings on Saipem(our preferred play)and TechnipFMC,and Hold on SUBC.Are 2020 jitters creeping in?Offshore OFS heads into 2020 arguably in better shape than a year ago,but recovery pace means things may only marginally improve Order backlogs are replenished but margin pressure is set to kick in when many thought the recovery would be in full swing Our preferred name remains Saipem,we are also Buyers of TechnipFMC following its recent de-rating and retain Hold on Subsea 7 3 Equities Energy Equipment&Services 27 November 2019 1.Were not the only ones potentially nervous about 2020 offshore orders Following the conversion of some yet to be sanctioned contracts into confirmed awards(e.g.Saipems USD880m Guyana SURF contract),European offshore OFS companies are honing in their 2019 order intake targets(1x B2B for Subsea 7 and Saipem,and a 50%year-on-year increase in absolute of TechnipFMC).Company offshore order guidance 2019:TechnipFMC Saipem Subsea 7 50%increase over 2018(USD7.5bn)1x B2B(EUR4bn)1x B2B(USD3.8-4bn)Looking forward to 2020,our concern is that the overall volume of work to be awarded over the next 12-18 months does not indicate an acceleration of order intake in 2020 versus 2019.In fact,depending on where certain major orders might land it is possible to see orders in 2020 flat-to-down versus this year.We believe this picture is not one that the market currently anticipates(or one that is already implied in consensus forecasts for the subsea contractors for 2020/2021).For example,some company-collected consensus estimates indicate expectations of roughly 20%year-on-year offshore orders for particular offshore contractors.Looking forward to 2020 we assume just under USD16bn of orders across the companies,implying a B2B of around 1.05x(i.e.just slightly higher than the USD15.3bn needed to achieve the symbolic 1x B2B level).The incremental step-up required to reach a growth order rate trajectory of 1.3x is estimated at around USD4bn and is not factored into our 2020 estimates.Offshore order intake scenario,2017-20e for FTI,SPM and SUBC 2017a 2018a H1 2019 2019 1x B2B 2020 1x B2B 2020 1.30 x B2B Offshore order intake(USDm)12,273 13,797 9,220 14,400 15,275 19,850 Source:Company data,HSBC estimates The current bidding pipeline,while active,looks to contain work levels sufficient to support current activity levels,rather than drive incremental growth in activity.Our medium-term view remains relatively unchanged we see the overall subsea market opportunity(in absolute terms)over the current 5 year period(2018-2022)reaching just over 70%of that realised over 2010-2014.12m historical rolling average offshore orders are above 1x B2B Source:Company data,HSBC 0.00.51.01.52.02.53.03.5Q1 11Q4 11Q3 12Q2 13Q1 14Q4 14Q3 15Q2 16Q1 17Q417Q3 182Q19FTISPMSUBCSubsea 12m rolling avg.Some market estimates for offshore OFS indicate a 20%YoY increase in orders Offshore OFS needs an extra USD4.5bn of 2020 awards to turn a B2B of 1x into 1.3x TechnipFMCs strong 2019 has pushed the sector average order intake above 1x B2B Equities Energy Equipment&Services 27 November 2019 4 2.Offshore margins potentially in a holding pattern over the coming 12-24 months Commentary from offshore OFS companies at Q3 earnings has put markets on alert for potential margin pressure in the coming quarters from a couple of angles,particularly embedded margins in the backlog and PLSV day-rate re-contracting risk.We discussed these issues recently in more detail in our report Subsea F9:Recalculating the recovery,15 October 2019,and our view is that given the current environment of subsea industry overcapacity(industry equipment manufacturing and vessel capacity remaining underutilised),plus the continued operator project selectivity seen around new work,we believe that immediate pricing gains are likely to prove beyond the reach of the subsea value chain.As such,we view the subsea margin recovery story as a gradual process from a 2019/20 margin trough,with potential gains not visible until after 2020.3.Has the business model market share shift run its course?We note that TechnipFMCs positioning as the only fully integrated operator(offering integrated subsea equipment and installation under the same roof)has been to its advantage in 2019,with significant market share gains across order intake.While we do not expect the trend of operators exploring integrated options to reverse in the near or medium term,we do think the initial shift has largely run its course.As an illustration,industry consultants MSI see the major growth in the integrated SPS/SURF model as taking place over 2016-2019,with the share of integrated work remaining roughly similar over the following few years.As such we do not see the integrated model providing the sort of significant boost to offshore orders as it did for TechnipFMC in 2019.Alongside TechnipFMC,the main competition is from the SIA(Subsea Integration Alliance)between OneSubsea(Schlumberger)and Subsea 7,which is now fully set up(has been so since April 2019),with other subsea players working with looser alliances(e.g.Aker Solutions and Saipem)or on a more ad-hoc basis(e.g.Baker Hughes and McDermott).The kick in integrated orders over 2016-2019 may flatten out to 2022e Source:MSI Ltd,HSBC estimates 050100150200250300350400201420152016201720182019e2020e2021e2022eSPSIntegrated SURF/SPS 5 Equities Energy Equipment&Services 27 November 2019 Investment views the stocks Saipem Buy,new TP EUR5.20(from EUR5.15):Our preferred name in subsea OFS,despite our expectation of flat offshore orders and revenues(EUR4bn out to 2022)over 2020-21,its recent USD880m SURF award with ExxonMobil in Guyana effectively takes it to its 1x B2B target for 2019.The continued backlog growth in the Onshore E&C business provides increasing top-line visibility out to 2022(significant YTD orders include USD6bn Mozambique LNG,USD3.5bn Saudi Aramco,EUR2.2bn Arctic LNG and a possibility of an Nigeria LNG award in 2019 remains).We conservatively value this segment at 0.3x sales,but using peer multiples of 0.4-0.5x we could see a higher fair value of EUR1 per share.TechnipFMC Buy,new TP USD24/EUR21.8(from USD27/EUR24.6):We retain a Buy rating on FTI despite our lower target price,helped by the recent de-rating following its Q3 results.The upcoming split into TechnipFMC(Subsea and Surface Technologies)and Technip Energies(Onshore/Offshore E&C)does represent near-term uncertainties as the market awaits the deal prospectus that will lay-out the proposed capital structures of the two entities.Despite management optimism that Subsea orders can be maintained at its 2019 level,we see inbound contract values down over 10%YoY in 2020(see management quotes on page 7)this equates to a rate of USD6.5bn pa over 2020-21e from USD7.5bn in 2019.We see Surface Technologies activity and margins as largely flat in 2020,with an increasing contribution from ex-US markets(see Global Oilfield Services:The value lies in International(ex-US)exposure,8 November 2019).The Onshore/Offshore E&C has line of sight on another large order announcement due in H1 2020 as the Rovuma LNG project in Mozambique is formally sanctioned.We expect 2020 margins to continue to be positively skewed by the overhang from the profitable Yamal LNG project close-out.Subsea 7 Hold,new TP NOK95(from NOK90):We continue to remain cautious on the short-to-medium prospects,partly due to Subsea 7s concentration in offshore SURF and offshore wind.We differ the most with consensus on Subsea 7s 2020/21 EBIT level and highlight PLSVs re-contracting risks occurring in 2020 that will impact offshore margins from 2021/22.This is compounded further by the lack of visibility on any large offshore wind EPC contracts for execution in 2020 or 2021.Offshore OFS stocks and oil price YTD 2019 Source:Refinitiv Datastream 0.80.91.01.11.21.31.41.51.6Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19Dec-19FTISPMSUBCBRENTSaipem remains our preferred offshore OFS play Despite lowering our TP,TechnipFMCs recent sharp de-rating means it remains Buy We raise our Subsea 7 TP to NOK95 but see short-term challenges in offshore wind and a slow margin recovery Equities Energy Equipment&Services 27 November 2019 6 Offshore OFS Changes to our target prices Ticker Currency Current price _ TP _ _ Rating _ Implied upside/downside Company Old New Old New TechnipFMC FTI US USD 19.65 27.00 24.00 Buy Buy 22.1%TechnipFMC FTI FP EUR 17.61 24.60 21.60 Buy Buy 23.8%Saipem SPM IM EUR 4.28 5.15 5.20 Buy Buy 21.5%Subsea 7 SUBC NO NOK 99.06 90.00 95.00 Hold Hold-4.1%Note:Priced as of close at 21 November 2019.Source:Refinitiv Datastream,HSBC estimates Where we are different Our Saipem target price is 9%below street averages,21%below in the case of Subsea 7 and 20%below for TechnipFMC.Our expectations of a slow offshore activity and margin recovery puts us below consensus in 2020e for Subsea 7 and TechnipFMC in 2020,whereas we are in line with the street for Saipem next year.Our estimates diverge more materially in 2021 as we view the offshore recovery taking longer than the market is currently accounting for,leading to variances of over 20%for EBIT and EPS for TechnipFMC and Subsea 7.Where we sit HSBC estimate vs consensus TechnipFMC 2019e 2020e 2021e Sales -1.2%-3.2%-1.9%EBITDA 1.2%-4.6%-14.0%EBIT 2.1%-8.2%-22.4%EPS 1.5%-6.4%-27.1%Saipem 2019e 2020e 2021e Sales 0.1%-0.4%5.5%EBITDA 1.6%0.8%-1.0%EBIT 1.3%1.4%0.4%EPS -3.2%-11.0%-15.7%Subsea 7 2019e 2020e 2021e Sales -1.9%-4.2%-6.7%EBITDA -2.4%-5.8%-11.8%EBIT -8.9%-20.0%-31.0%EPS -4.4%-18.0%-31.6%Source:HSBC estimates Our TPs are on average 15%below the street Our estimates materially diverge with the street by 2021 due to our view of offshore oil&gas activity 7 Equities Energy Equipment&Services 27 November 2019 Q3 earning call sound-bites“We have started to see a positive impact from the better pricing on