Merrill Lynch downgrades Singapore Petroleum Co. (SPC) to Underperform from Buy to reflect caution over Asian refining sector, margin revisions in '09-'10; "additionally, we cite the company's accounting complexity and rapidly rising working capital as major risks." Cuts target price to $2.00 from $10.00 after changing valuation basis to trough cycle valuation from discounted cashflow model. Expects complex refining margins to fall if Asia heads into recession; "the unusual extent of the profit deterioration in 3Q08 and the lack of catalyst from a sector perspective lead us to recommend investors to exit the stock."
Beware! Big cut in tp. And with oil prices still likely to fall, may not be time to buy SPC yet.
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