KUALA LUMPUR: Affin Hwang Capital research is downgrading the oil and gas sector to neutral from overweight given the uncertainty over global demand and run-up in stock prices in 1H19.
The research house's top picks include Petronas Chemicals, Serba Dinamik
, Velesto Energy and Kelington.
In a note, it said concerns over an escalation of the trade war saw global oil prices fall with Brent crude oil now traidng at the lower end of US$60 a barrel.
"While there is market expectation of a compromise between the US and China, the after effect has already been felt from the earlier rounds of tariffs.
"With economic demand at risk more than ever, we downgrade our 2019E Brent crude oil price forecast to US$65–70/bbl (from US$70–75) and 2020E forecast to US$65–70/bbl (from US$70)," it said.
In 1Q, corporate earnings were generally viewed as more positive than in the previous quarter with Petronas Chemicals being the only casualty from the prolonged trade war affected by the lower product average selling prices.
"Sentiment on the sector was dragged down following the disappointing, but not unexpected weak results from offshore maintenance players due to the monsoon season.
"Activity level has seen a pick up from Apr-19, particularly from the maintenance and decommissioning space, also benefiting the offshore support vessel (OSV) players.
"We expect a strong surge in contract flow as we await the award of hook up commissioning packages (in the range of RM4bn) from Petronas, and also quicker capex spending ramp up as Petronas’ 1Q19 actual spending was seen to be on the low side vs its RM50bn full year target," said Affin Hwang.
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