PETALING JAYA: The local oil and gas (O&G) sector has a resilient outlook, underpinned by strategic energy security requirements and an anticipated upcycle in Petroliam Nasional Bhd’s (PETRONAS) capital expenditure (capex).
Hong Leong Investment Bank (HLIB) Research, in a report, stated geopolitical risks remain high despite the de-escalation in Middle East tensions.
It has, nevertheless, revised its 2026 Brent crude oil price forecast downward to US$80 a barrel (from US$90), and maintained a 2027 projection of US$75 despite the bearish projected demand supply fundamentals of the sector.
The research house stated oil prices are expected to remain supported by the Organisation for Economic Co-operation and Development demand where commercial inventories are forecast to fall to roughly 50 days of supply by late 2026, significantly below the pre-war level of over 60 days.
It believes oil prices will likely stay elevated until global flows normalise and inventories are replenished.
HLIB Research added the energy security issue should support tank terminals, pipeline players and brownfield development.
The research house expects investments to go into brownfield developments to ensure production levels support near-term supply resilience. This will help support a robust outlook for O&G service providers and upstream players.
A primary catalyst for the local O&G sector is the expected PETRONAS capex upcycle next year.
HLIB Research expects the national oil company to spend on upstream development, maintenance, construction and modification (MCM), hook-up and commissioning and marine support services.
Companies like Dayang Enterprise Holdings Bhd
(“buy”: target price (TP): RM2.20) stand to gain due to its exposure to MCM activities, the research house stated.
Velesto Energy Bhd (“hold”, TP: 27sen), should benefit from higher jack-up rig demand and utilisation while offshore support vessel providers like Keyfield International Bhd and Perdana Petroleum Bhd could gain from higher offshore activity and charter rates.
Sector companies can also look forward to opportunities in the region as greenfield capex in South-East Asia is estimated to increase by 12% with priority on new offshore developments.
HLIB Research’s top picks include Dialog Group Bhd (“buy”: TP: RM2.52) which the research house said is well positioned to benefit from the energy security theme through its independent tank terminals in Pengerang, Johor.
The company currently maintains a utilisation rate of above 90% at its tank farm in Pegerang.
HLIB Research stated Hibiscus Petroleum Bhd (“buy”: TP: RM2.59) offers exposure to stronger upstream earnings, at an attractive 2026 price earnings multiple of 5.9 times.
