PETALING JAYA: The oil and gas (O&G) sector, weighed down by geopolitical uncertainties, is likely to experience a market correction rather than a prolonged downcycle, according to BIMB Securities Research.
“The geopolitical conundrum has dragged the sentiment over a potential slowdown in offshore activity. Notwithstanding, we see it as a market correction rather than a full-blown downcycle, given our oil price scenario outlook remains intact,” the research house said in its latest report on the sector.
The research firm maintained its oil price assumption of US$75 per barrel for 2025, anticipating that it will support ongoing investments in offshore projects despite current headwinds.
The research house said the sector’s outlook is clouded by unresolved geopolitical issues, including a conflict between Petroleum Sarawak Bhd and Petroliam Nasional Bhd (PETRONAS) over the role of sole gas aggregator in Sarawak, as well as potential incentives from the United States to boost shale drilling “may weigh on oil prices”.
“While there may be some slowing in the near term, we see it as a correction rather than a full-blown downcycle – the offshore service rate will cool to allow for a more sustainable pipeline of projects,” it said.
Despite current challenges, BIMB Securities Research sees the recent weakness in oil and gas stock prices as a buying opportunity.
“We think the recent stock price weakness is an opportunity to accumulate at a lower level,” the research house said.
Key factors that could drive a re-rating of the sector include fresh contract awards, order book replenishments and increased dividend payouts, it added.
The research house has maintained its “overweight” stance on the sector, particularly for upstream players.
For the third quarter ended Sept 30, (3Q24), BIMB Research said the financial performance of companies under its coverage were largely within expectation.
“Dayang Enterprise Holdings Bhd
and Velesto Energy Bhd outperformed while MISC Bhd and Hibiscus Petroleum Bhd lagged our earnings estimates, though the latter are expected to make a strong come back in 4Q24,” it noted
It said both Dayang and Velesto’s earnings beat its full-year estimates thanks to better-than-expected profit margins amid stronger daily charter rates for offshore rigs and vessels.
“Sapura Energy Bhd also staged a greater showing but the sustainability is at risk given that the outperformance is likely to be aided by reversal of contingency cost provisions. Similarly, Petronas Dagangan Bhd also temporarily benefited from favourable jet fuel prices that lagged lower product costs,” it noted.
