Onset of a massive snowstorm on the U.S. East Coast sent U.S. heating oil up more than 10 percent
KUALA LUMPUR: CIMB Equities Research has resumed coverage on the oil and gas (O&G) sector with a downgraded call to Neutral.
“We cut EPS and target prices for all companies, downgrade SapuraKencana and Wah Seong to Hold, downgrade UMW Oil & Gas and MMHE to Reduce, and cease coverage on Perdana Petroleum and TH Heavy.
“Petronas Dagangan and Perisai are upgraded to Hold. We prefer Bumi Armada
, Dialog and Uzma,” it said on Wednesday.
CIMB Research recommend investors to be selective. Bumi Armada is its top pick for the big caps in the upstream segment, while Uzma is its top pick for the small caps in the upstream segment. Dialog is its preferred pick in the midstream and downstream segment.
The research house said 2015 saw oil & gas stock prices tumble in tandem with the crude oil price and expects 2016 to be another challenging year for the industry. It recommended investors to focus on specific segments of the value chain,” it said.
To recap, CIMB Research said crude oil price continued its slide in 2015, with the price of Brent crude declining 33.9% from early in the year until end-2015, attributed mainly to the global oversupply of oil.
Consistent with the plunge in crude oil price, domestic oil and gas companies have been feeling the pinch of the industry slowdown.
Share prices collapsed; mostly below net assets and NTAs while 2015 also saw a steep drop in share prices of most companies under its coverage.
Across-the-board, stocks have been trading at valuations less than the values of their net assets, with some even trading at discounts to their net tangible assets. The hardest hit was on the exploration and development players within the upstream value chain.
“We expect Petronas to prioritise certain projects due to their larger long-term impact. Key ones would be the integrated LNG project in Canada encompassing the upstream North Montney Joint Venture and Pacific North West LNG plant, the LNG Train 9 in Bintulu and two Floating LNG projects,” it pointed out.
Domestically, capex plans for the Pengerang Integrated Complex (PIC) including RAPID should be intact.
Certain segments within the oil and gas value chain should perform relatively well. The research house concluded that the low crude oil price should have limited impact on the upstream production, midstream and downstream segments.
Production activities should be supported by the sustained focus on maximising production at brownfields. However, the halt in exploration activities spells further slowdown in development activities..
