PETALING JAYA: Despite easing energy prices, AmInvestment Bank Research (AmResearch) has upgraded Malaysia’s oil and gas (O&G) sector to an “overweight”.
This is premised on near‑term earnings upside from elevated oil prices and shipping or storage demand, to be followed by medium‑term activity recovery driven by Petroliam Nasional Bhd’s (PETRONAS) capital expenditure (capex) cycle.
The research house has maintained its Brent crude oil futures price forecast of US$95 a barrel for the year, supported by tight physical markets despite the proposed US‑Iran peace deal.
AmResearch said supply losses from the conflict region outweighed demand destruction, with inventories flipping from builds to drawdowns.
Furthermore, seasonal demand from summer travel and refinery runs will add further support to oil prices.
“We expect oil prices to remain higher for longer, with a gradual return of PETRONAS spending,” AmResearch stated in its report.
This, it added, would benefit direct earnings winners such as Hibiscus Petroleum Bhd
, MISC Bhd and Dialog Group Bhd.
PETRONAS’ capex is expected to rebuild toward RM45bil to RM50bil in its financial year 2026 (FY26) to FY28, underpinned by strong operating cash flow and energy security needs.
The research house said the strong crude oil price has historically driven upstream spending, with activity expected to recover into 2027 and 2028.
This will lift utilisation rates and support charter‑rate repricing, benefitting O&G services and equipment providers such as Dayang Enterprise Holdings Bhd, Keyfield International Bhd and Deleum Bhd, all offering attractive cash yields of 5% to 8%.
From an investment thesis, AmResearch said the sector has moved from balance sheet repair to cash flow delivery, with stronger free cash flow yields (5% to 6%) and dividend yields (4% to 5%).
Investor scars from past downturns – the 2014 to 2016 crash, 2020 Covid shock, and the restructuring of Sapura Energy Bhd (since renamed as Vantris Energy Bhd) – are fading.
This supports the re-rating potential toward a higher price earnings multiple.
It added that funds were “overweight” in energy at 4% versus the FBM100’s 1.5% weight, but still below the 5% peak in 2024.
A return to peak allocation could imply RM3.1bil of incremental fund flows into energy equities.
For exposure to sector companies, AmResearch has “buy” calls on Hibiscus (target price or TP of RM2.60), MISC (TP: RM9.50), Dialog (TP: RM2.40), Dayang (TP: RM2.30), Keyfield (TP: RM1.80) and Deleum (TP: RM1.60).
