MIDF Research upgrades oil and gas to positive

Dialog Group is among MIDF Research's top picks.

PETALING JAYA: Citing improving prospects, MIDF Research has upgraded its outlook for the oil and gas sector to “positive” from “neutral” previously.

“We upgrade to positive both the upstream sub-segment and downstream sub-segment. This is premised on sustained recovery trajectory in both demand and product prices. We anticipate that both sub-segments will benefit from the recent rally in oil price in terms of potential new contract awards following a more palatable oil price, ” MIDF Research said.

It noted that there was also an increase in product prices and spreads for the downstream industry players.

MIDF Research believes that the recovery narrative for the sector remains on track despite the absence of revision in exploration and production capital expenditures spending from oil majors.

“More selected spending approach will result in a more sustained recovery and significant uptick in activities within the oil and gas sector in the second half of the year, ” it said.

MIDF Research had also highlighted several counters that may benefit moving forward.

“We are expecting the oil and gas players to register stronger year-over-year earnings growth in the financial year 2021 after a series of commendable earnings recovery recorded from the third quarter of 2020 onwards. This is also in-line with our higher crude oil assumption for 2021 at US$58 per barrel from US$51 previously, ” it said.

MIDF Research said it reiterates its view of favouring companies that have been weathering the current pandemic successfully and coming out of it with minimal dent.

“At this juncture, we continue to recommend companies with: strong fundamentals, stable recurring income, good business segmentation and a well-diversified revenue base, ” it said.

These stocks are Dialog Group Bhd, Serba Dinamik Holdings Bhd and Gas Malaysia Bhd, it said.

It noted that Sapura Energy Bhd and Malaysia Marine and Heavy Engineering Holdings Bhd are the companies that are expected to benefit from increased exploration & production spending from oil majors and the national oil companies should oil prices continue to recover.

Meanwhile, in terms of dividend play it is recommending Favelle Favco Bhd and Petronas Gas Bhd noting that these companies have been registering not only stable recurring income but also consistent dividend payouts for the past three years.

“Our top environmental, social, and governance (ESG) pick within the sector would be the two Petronas companies: Petronas Chemicals and Petronas Gas given the parent company’s commitment in reaching zero-carbon emission by 2025 and various other internal ESG-driven initiatives, ” it said.