PETALING JAYA: Oil and gas (O&G) services provider Steel Hawk Bhd
’s pivot to utility contracts to mitigate the downturn in the domestic O&G industry is expected to support the company’s earnings growth trajectory, says Affin Hwang Research.
The research house, which initiated coverage on the stock with a “buy” call and a target price of 43 sen, said the company’s engineering, procurement, construction, and commissioning division has expanded to take on utility contracts with a combined value of RM189mil.
“This quick pivot is part of management’s effort to navigate the downturn in domestic O&G activity,” it said, expecting a pickup following muted activity in the nine months to Sept 30, 2025.
“Our earnings forecasts imply that the majority of financial year ending Dec 31, 2026 (FY26) earnings will be derived from utility contracts, with O&G jobs accelerating into FY27,” it said.
The research house said its FY25 to FY27 earnings projections imply a three-year compound annual growth rate of 22%.
It expects growth to be supported by multiple long-term O&G contracts as well as utility-related jobs secured over the past year, with the slowdown in tendering activity to be offset by the recently secured utility jobs.
It said O&G maintenance activity would likely improve gradually heading into FY27 as the company’s client sorts out manpower restructuring issues related to downstream maintenance.
The research house noted that O&G remains a key revenue contributor over the long term.
“The company secured multiple O&G long-term contracts that are expected to elevate its revenue base in the upcoming years,” it said, adding that these contracts ensure continued and safe operations at brownfield O&G sites.
Given that these were part of clients’ operational expenditure, it said these spending would be less susceptible to potential cuts even with volatile crude oil price.
Historically, O&G and Petroliam Nasional Bhd contributed from 45% to 66% of the company’s revenue from FY22 to FY24.
