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This from a report we published on a Japanese plant engineering firm in late 2017:

‘Weak 1H earnings continued to reflect a poor FY 3/17 orders environment, when the low oil price was accompanied by a lack of capex, as well as ongoing low margin projects in the US & Malaysia.’

In many ways it neatly sums up the cyclical dependence of the global oil & gas industry, with a low oil price dictating associated projects become economically unviable & subject to inevitable delays & a high oil price exactly the opposite.

Case in point has been the Kitimat LNG project in British Columbia, Canada. Rewind to 2016 & consortium leader Royal Dutch Shell was not prepared to commit to anything resembling a final investment decision following a sharp decline in its 2015 earnings that echoed the -54% fall in the WTI crude price from mid 2014 to early 2016.

A subsequent rally to the current $67 level, in part the result of Saudi led production curbs, has turned the situation on its head. Confirmation the Kitimat project was moving ahead arrived on 23rd April 2018, with the new plant scheduled to start liquifying shale gas from approx. 2023.

Japan has significant expertise in LNG plant engineering, thus news that JGC (1963), in partnership with Fluor, had beaten a bid from TechnipFMC & KBR to win an order worth approx. $14bn was unsurprising.

What has caught our eye is the extent to which Japanese plant engineer & design companies’ stock prices have remained in the doldrums despite a clear & continuing improvement in underlying fundamentals.

Investors in search of ideas should get in touch.

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