PETALING JAYA: UOB Kay Hian (UOBKH) Research says there are a few gem stocks in the oil and gas (O&G) sector worth considering, despite the current depressed sentiment amid uncertainties in the industry outlook.
The research house said: “In our view and at the very least, oil price forecasts have established a reasonable floor, which represents the only certainty from the US-Iran war, for example, the gradual reopening and repairs of damaged production infrastructure.”
Petroliam Nasional Bhd (PETRONAS) meanwhile remains steadfast in pushing and expediting new projects to uphold the target of two million barrels of oil equivalent per day domestic production while accelerating exploration projects for long-term production.
UOBKH Research, which maintained a “market weight” on the sector, said it favours gems such as MISC Bhd
, Dialog Group Bhd, Uzma Bhd, Deleum Bhd, Dayang Enterprise Bhd and Hibiscus Petroleum Bhd.
“We have retained the sector call since the PETRONAS-Petroleum Sarawak Bhd (Petros) fallout in the second half of financial year 2024 (2H24) and, this continues to assume a no-resolution scenario,” it noted.
UOBKH Research, however, advises a wait-and-see approach believing that PETRONAS-Petros is still the key event to watch out for, regardless of the US-Iran war’s outcome.
“If a positive final resolution is made by the Federal Court, we believe this will be material enough to lift most of the Malaysia Agreement 1963 discount on sector valuations since 2H24.
The research house, which has a “buy” call on MISC with a target price (TP) of RM9.50, said the stock has good near-term catalysts especially due to its exposure to the crude tanker segment.
“We retain the high 1.4 times price-to-book valuation for petroleum to factor in positive trading sentiment even though spot rates have reverted to pre-war levels,” UOBKH Research added.
For the long term, it sees increasing capital expenditure commitments and vessel deliveries in 2028, which it interprets as MISC playing catch up to deliver those ships by the stipulated date.
As for Dialog, UOBKH Research said it is the new “upstream champion”.
The research house has a “buy” call on the stock with a TP of RM2.95 per share.
“We believe Dialog warrants high enterprise value/earnings before interest, taxes, depreciation and amortisation, relative to its three-year average of 12 to 19 times, given near-term potential for its upstream earnings to surprise on the upside.”
This is due to the anticipated new production volumes from Cendramas production sharing contract in the third quarter of financial year 2026 and the Baram Junior Cluster PSC between October and November this year.
