Kenanga Research expects the O&G upstream services sector to remain volatile in the short term, given the weakening macro outlook for Brent crude prices.
PETALING JAYA: Upstream oil and gas (O&G) services companies are cautiously optimistic going into financial year 2026 (FY26), with expectations of gradual improvement in earnings as well as a flattish year-on-year trend, says Kenanga Research.
In a report, the research house said this indicates FY25 could be the bottom-trough earnings year for the current downcycle, which was much less severe than previous downcycles.
Meanwhile, petrochemical-based companies are expected to remain weak in the near term.
However, “in 2026 our thesis of supply tightening (at least for a short period of time) could still play out.
“Hence, we are sticking to our bullish lean on petrochemicals though admittedly the recovery is taking longer than anticipated,” it noted.
According to Kenanga Research, the recent third quarter of financial year 2025 results showed no surprises in the earnings of O&G companies under its coverage with 78% within expectations.
Dayang Enterprise Holdings Bhd
performed above expectations due to stronger-than-expected marine division performance.
For the same quarter, while Perdana Petroleum Bhd’s vessel utilisations dropped, daily charter rates (DCR) appeared to stabilise, signifying that despite the weak demand, vessel supply constraints continue to provide a floor for DCRs.
Dialog Group Bhd also showed resilience in its earnings, as its engineering, procurement, construction and commissioning division is no longer bleeding, unlike the previous quarters, indicating that the worst could be behind.
However, Petronas Chemicals Group Bhd’s (PetChem) results were disappointing due to persistent losses from Pengerang Petrochemicals Company Sdn Bhd and further weakening of its speciality business due to weak industrial demand globally.
“In short, we underestimated the duration of the down-cycle in both polyolefin and speciality chemical markets, which started in 2023,” added Kenanga Research.
The research house expects the O&G upstream services sector to remain volatile in the short term, given the weakening macro outlook for Brent crude prices.
“As such, we are not pivoting to a bullish stance on upstream services yet, despite early signs of earnings bottoming across the sector,” it said with a “neutral” stance on the O&G sector.
“We will continue to monitor the subsector closely over the coming quarters to gauge the trend before turning more constructive.”
It is sticking to its top pick, PetChem, being the higher-risk but also higher-return-potential pick, as the petrochemical sector cyclical recovery thesis could still play out in 2026.
It also kept Dialog as second top pick to hedge its riskier PetChem pick, as “the company appears to exhibit a more stable earnings trend with potential for gradual growth in the longer term”.
Kenanga Research has upgraded MISC Bhd in its recent results review while maintaining an “outperform” call to reflect the upward trend in second-hand petroleum vessel prices.
