Mixed outlook for sector

Encouraging: Petronas remains steadfast in its commitment to support local oil and gas service providers.

PETALING JAYA: The outlook for the oil and gas industry remains relatively mixed following the release of Petroliam Nasional Bhd’s (Petronas) latest annual activity outlook report.

Analysts, however, note brownfield services providers will continue to be the main beneficiaries of the national oil and gas company’s capital expenditure over the next two years according to Petronas’ Activity Outlook (PAO) for 2021-2023.

In essence, Maybank Investment Bank Research (MaybankIB) said, the drilling operations, requirement for mid-sized fabrication structures and plant turnaround operations would see increased activities this year, citing the report.

“Overall, we remain positive for the sector, ” the brokerage said.

“While most of the oil and gas companies under coverage are major recipients of Petronas’ activities, there are some notable names that have established themselves as global players in their respective space, ” it wrote in its report yesterday.

MaybankIB key “buys” for the sector are Dialog Group Bhd, Yinson Holdings Bhd, Wah Seong Corp Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and Icon Offshore Bhd.

“Putting things into perspective, we see MMHE as a key beneficiary of Petronas’ fabrication workflows in Malaysia for 2021, a positive to its orders replenishment, ” it said.

“Icon and Velesto Energy Bhd remain the best proxy to Petronas’ drilling programmes. Wah Seong/Dialog are key beneficiaries to the pipe-coating/maintenance works. Yinson and MISC Bhd will compete head-on for the Limbayong FPSO (floating production storage and offloading) re-tender, ” it explained.

In addition, MaybankIB noted Icon and Alam Maritim Resources Bhd are key features for an exposure to the offshore support vessels space.

Meanwhile, Kenanga Research and MIDF Research said they remain neutral on the outlook for the oil and gas sector.

“As fundamentals within the sector still remain weak, the PAO further confirms our view that a recovery trajectory would be slow and gradual. As such, we recommend being selective for this sector, ” Kenanga Research said.

Its preferred trading pick for the sector is Uzma Bhd, while its fundamentally-driven picks are Serba Dinamik Holdings Bhd and Dialog. Its 2021 average Brent crude price assumption remains unchanged at US$50 per barrel.

“Overall, we deem the activity outlook to be slightly underwhelming, as most of the value chains were expected to see either flattish or lowered activity levels from 2020, going into 2021, ” Kenanga Research said.

“Ultimately, we believe this downplays the possibility of a huge boost towards recovery, or a resumption of pre-pandemic activity levels for the coming year, ” it wrote in its report.

MIDF Research said its neutral stance applied for both upstream and downstream sub-segments, as the sector would continue to be susceptible to the fallout of the Covid-19 pandemic.

The brokerage, however, was encouraged by the fact that Petronas remained steadfast in its commitment to support local oil and gas service providers.

“The outlook also among others assured that there will be at least a sustained activity level in the next three years locally despite the subdued operating environment in the sector worldwide, ” MIDF Reseach said in its report.

Its top picks for the sector are Dialog and Serba Dinamik for their resilience, well-diversified revenue base and limited exposure to direct upstream business activities.

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