PETALING JAYA: While maintenance activities in the local oil and gas space are set to increase in the next two years, cost pressures will remain, said UOB Kay Hian Research.
The research house reiterated its “market weight” stance on the sector, noting that its sector theme was to focus on internationally competitive companies.
Petroliam Nasional Bhd (Petronas) recently released its latest multi-year activity outlook (PAO), in which it indicated a notable increase in local upstream requirements in the 2019-2020 work scope for jackup rigs, offshore support vessels (OSV) and maintenance, construction and modification (MCM) works.
UOB Kay Hian Research said this had strengthened its view that maintenance activities must increase but cost pressure will remain.
“The overall outlook reinforces our opinion that maintenance activities must increase to ensure the sustainability of upstream production which is increasingly critical given that Petronas’ entitled volumes for the first nine months of 2018 fell by 7%,” it said.
It said the increased activity would help boost earnings visibility in sections including jack-up rigs, which will benefit Velesto Energy and OSV requirements, which will benefit players like Alam Maritim, Perdana Petroleum, Icon Offshore and Marine & General Bhd.
The research house also noted that hookup commission and MCM activities had increased, to benefit Sapura Energy, Dayang, Deleum, Carimin and Petra Energy.
Petronas also increased its plant turnaround activities for 2019-2020, which would benefit players like Serba Dinamik and Dialog, it added.
Quarterly utilisation, however, might remain volatile, the research house said.
“We retain our view that local upstream activity increase will be moderate, hence we prefer to invest in companies that have visibility for earnings upgrades and do not depend on Petronas work orders,” it said.
International contractors and floating production storage and offloading (FPSO) players have a stronger correlation to the international industry recovery, it added.
UOB KayHian Research’s top “buy” is Serba Dinamik, saying the group should see earnings rerating with an order book target of RM10bil in 2019.
It also likes FPSO players Yinson Holdings, given its long-term earnings rerating from new and potential mega contracts, and Bumi Armada, which despite having a higher execution risk compared to Yinson, may see valuations emerge in 2019 once it resolves balance sheet issues and improves earnings execution.
On potential losers, it said yard players like Malaysia Marine and Heavy Engineering Holdings Bhd and Sapura Energy will see lower central processing platform awards, and the higher wellhead platform requirements will only be in 2020.
“Pipelay barge players like Barakah also appear to be losers given mixed requirements,” it added.
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