Bumi Armada's total order book as at end-March 2016 was RM36.4bil
KUALA LUMPUR: Alliance DBS Research has advised investors to focus on oversold oil and gas service providers amid dimmed near term earnings prospect.
It said on Friday it continues to see earnings pressure lingering among the O&G service providers for 2016.
“We advocate investors to continue to cherry pick particularly on companies with bashed down valuations, coupled with long-term income streams which provide more certainty under the current environment.
“Our Buy stocks are Bumi Armada
and Pantech (which are our big cap and small-cap top Buys). Our fully valued stocks are Petronas Chemical, SapuraKencana, UMW Oil and Gas, MMHE and Dayang,” it said .
AllianceDBS Research said the recently concluded results season for the first quarter ended March 2016 reported some earnings hits and misses despite its earlier earnings cut.
“To our surprise, most of the companies under our O&G universe continued to underperform consensus expectations which have witnessed a few rounds of drastic earnings cut.
“Post earnings result adjustment, we now have CY16/17F earnings growth estimates of -15%/+21%. For starters, among the 10 stocks under our universe, two beat our forecasts, two met our expectations while six came in below,” it said.
The research house said Petroliam Nasional Bhd's (Petronas) revenue and core net profit fell by 26% and 3% on-year.
For its upstream segment, Petronas continues to suffer from lower average selling prices, coupled with lower LNG volume from its LNG complex in Bintulu, Sarawak, while downward price trends of crude oil, petroleum and petrochemical products continue to hurt its downstream segment.
In tandem with the decline in revenue, 1Q16 saw the national oil company's operating cash flow slumped 44% to RM9.8bil, which fell short of its 1Q16’s capital investment of RM11.3bil by RM1.5bil.
“Consequently, we are not surprised when Petronas announced last week that it will be seeking to raise US$7.2bil (RM29.5bil) financing for the RAPID project,” it said.
AllianceDBS Research said crude prices rebounded but outlook remains challenging. In 2Q16 to-date, it has seen benchmark Brent crude prices increase by 33% on-quarter to USD49 a barrel, while year-to-date prices have appreciated 37%.
“This has exceeded our current 2016/2017 forecast of US$35-US$40 a barrle and US$40 to US$45 respectively, which will be reviewed in due course.
"Notwithstanding the recent rebound in crude prices, global oil majors continue to be cautious with their capital expenditure spending hence prolonging any sector recovery in sight,” it said.
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