PETALING JAYA: Higher activity levels in the oil and gas (O&G) sector are expected in the coming months due to firm oil prices and spurring capital expenditure (capex), say analysts.
They are also bullish on the O&G sector as Petroliam Nasional Bhd (PETRONAS) is anticipated to ramp up its capex in the second half of the year.
Kenanga Research said it is maintaining an “overweight” call on the sector, underpinned by sustained firm oil prices, spurring capex and hence activity levels in the O&G industry.
“We maintain our average Brent crude oil price assumption of US$100 to US$110 (RM450 to RM495) per barrel for 2022-2023.
Comparatively, PETRONAS forecast Brent crude oil price to range between US$90 and US$95 (RM405 and RM428) per barrel in the second half of the year, with a downside bias in 2023.
“There are concerns over PETRONAS’s capex plans being jeopardised by the doubling of its dividend commitment to the government of RM50bil in 2022 from RM25bil in 2021.We are unperturbed as PETRONAS is set to post strong financial year (FY) 2022 earnings, barring a major crash in oil prices in the second half, and it has a strong cash buffer of RM103bil, which is the highest since 2018,” it said.
The research house said its top picks for the sector remained Petronas Chemicals Group Bhd
(PetChem) and Dayang Enterprise Holdings Bhd.
It liked PetChem given its favourable feed-cost structure against peers i.e. most of its gas feed stock could be procured from PETRONAS at a fixed pre-agreed price, while others may be hampered by the volatile input cost environment.
In addition, PetChem has a dominant market share regionally, which would be further cemented by the start-up of its Pengerang complex in the second half of the year – increasing its capacity by about 15%, added the research house.
As for Dayang, Kenanga Research said the company is the market leader within the maintenance, construction and modification and hook-up and commissioning space.
The recently concluded second quarter (2Q22) reporting season for the O&G sector saw a marked improvement against expectations from the last quarter.
Out of a total of 11 companies under its coverage, Kenanga said the percentage that disappointed dropped to 27% (versus 45% in 1Q22). On an even more encouraging note, 36% beat expectations versus nil in the last quarter.
It said two FBM KLCI constituent stocks within the sector missed expectations, namely Dialog Group Bhd (on higher downstream project costs) and MISC Bhd (due to cost escalation of its Mero-3 floating production, storage and offloading (FPSO) conversion works in China), both being hit by cost inflation.
Conversely, it said smaller names, mostly local contractors such as Dayang, Sapura Energy Bhdand Uzma Bhd did well driven by a recovery of activity levels amidst strong oil prices.
Velesto Energy Bhd lagged behind its peers as its rig utilisation remained lacklustre in the first half of the year.
Meanwhile, Kenanga said FPSO-player Bumi Armada Bhd surprised to the upside, thanks to reduced finance cost after having actively pared down its borrowings to a much more manageable level.
