In its research note on Thursday, it said with Brent crude spot prices stabilising above US$40/barrel, the down cycle has reached a bottom with the worst experienced in April this year when Brent spot prices plunged to a low of US$14 a barrel while futures inverted to an abnormal negative price due to lack of storage capacity.
“We continue to like Yinson as its earnings growth momentum from the maiden contributions of FPSO vessels Helang, off Sarawak, Abigail-Joseph in Nigeria and Anna Nery in Brazil together with multiple charter opportunities in Brazil and Africa.
“We like Petronas Gas, as the group’s optimal capital structure strategy and resilient earnings base translate to highly compelling dividend yields.
“We also recommend Dialog Group and Serba Dinamik Holdings due to their resilient non-cyclical tank terminal and maintenance-based operations, ” it said.
AmInvest Research said even though Bumi Armada is still likely to experience asset impairments towards the end of the year, the company has shown improving core profitability from higher operating performance of FPSO Armada Kraken while its major shareholder provides support against balance sheet risks.
It said the 3QFY20 results of the eight companies under its coverage were largely in line with expectations as six were within consensus while two were above.
MISC benefited from its heavy engineering division unexpectedly breaking even while Yinson’s earnings were propelled by accelerated recognition from the commencement of Petrobras’ FPSO vessel Anna Nery.
Sapura Energy's engineering and construction division posted surprisingly strong 1HFY21 earnings before interest, tax, depreciation and amortisastion (Ebitda) margins were boosted by lumpy contract adjustments and cost reversals.
AmInvest Research also pointed out the sector’s core 3QFY20 net profit rose 13% QoQ to RM1.8bil largely due to Petronas Chemicals’ 2.5 times surge from higher product prices, and slightly supported by Yinson’s accelerated FPSO profit recognition.
However, 3QFY20 EBITDA margin also slid 1 ppt to 36% due to Yinson’s lumpy revenue recognition.
While new contract awards to Malaysian operators halved YoY to RM4.6bil in 9M2020, the 3Q2020 orders rebounded 45% QoQ to RM2.4bil largely due to Serba Dinamik’s RM1.5bil civil construction job in the UAE.
“Excluding Serba’s UAE project, 3Q2020 orders instead shrank 45% QoQ to RM895mil. Even so, we view the slow order flow as the early stages of recovery for the sector, ” it said.
The research house said against the backdrop of a sharp demand drop in upstream oil services, it remains cautious on companies with high gearing levels such as Sapura Energy, which needs to restructure its RM10bil debt soon.
There is a risk that Velesto’s mounting losses from weak rig utilisation could develop into debt repayment difficulties next year.
For now, it is not unduly concerned that Serba Dinamik may again need an equity placement exercise to fund the working capital of its multiple overseas projects.
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