Consumption of the fuel the past four weeks was at the highest level since September.
KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research remains Neutral on the oil and gas (O&G) sector as it remains bearish on oil price for 2016.
It said on Thursday that oversupply was still expected to persist and the oil inventory was still at all-time high despite recent inventory draw.
“Target for this year remains at US$30 to US$35 a barrel while 2017 target for Brent would be US$45-US$50. Premature recovery in the oil prices, in our opinion, would stifle the long term recovery of the industry. The market is able to reverse back to its oversupplied level swiftly from restarts of US shale drilling,” it said.
HLIB Research expects 2016 would be even tougher for O&G counters with full-blown impact of downturn on earnings to be reflected.
“Longer term investors could buy strong cash generative companies on weakness throughout the year to position for industry recovery in 2017,” it said.
In 2015, it said there were RM3.6bil worth of impairments done by local asset players. However, it is not sufficient given charter rates have plunged 30%-40% with some assets being completely unutilised.
“For readjustment to the new rate norm, cash cost savings (staff costs, contractor costs) are not sufficient for the group to maintain P&L positive.
“Asset players need to impair their assets to a greater extent to bring down their overall cost structure through lesser depreciation. Asset value are, in our opinion, expected to stay in the level lower than seen before during US$100 a barrel oil era as oversupply situation is still present,” said the research house.
HLIB Research said investors should pay attention to cash. Overall, the local O&G companies still look rather healthy from the cash flow perspective with operating cash flow/sales more than 20% on average while operating cash flow/ interest remains healthy at more than three times.
“Dayang is singled out as the ideal long-term pick with high cash generation coupled with balanced business mix. Investors are advocated to buy on weakness of its share price in the coming quarters as weaker earnings are posted.
“Icon and MHB also appears to have strong cash position rendering them more stable than the others amid industry headwinds.
“The O&G sector remains primarily as a trading sector for shorter-term traders due high volatility in share prices and oil prices.
“SKPetro remains as the best trading stock with volatile share prices correlated to oil prices but investor have to take note that near term share price overhang remains given the risk of it being taken off as a KLCI constituent in the upcoming review,” it said.
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