PETALING JAYA: Analysts advocate to start positioning in the oil and gas services and equipment (OGSE) space for a potential capital expenditure (capex) spending recovery in 2027.
MBSB Research in a report to clients said the first half of financial year 2026’s (1H26) “real” capex fell to a multi-year low.
Petroliam Nasional Bhd (PETRONAS) 1H26 headline capex stood at RM41.4bil, but this included RM24.6bil of investments in associates and joint ventures, the bulk of which was the capital injection into PRefChem (Pengerang Refining Company Sdn Bhd and Pengerang Petrochemical Sdn Bhd as PETRONAS moves to full ownership, it said.
PRefChem was previously a joint-venture between PETRONAS and Saudi Arabia’s Saudi Aramco.
Earlier this year, the national oil company acquire Aramco’s 50% stake to make PRefChem wholly-owned once the transfer is completed.
Excluding this, “real” capex fell by about 5% year-on-year to a multi-year low of RM16.8bil (1H25: RM17.6bil), it said adding that this coincided with weaker Malaysia OGSE corporate earnings shown across the board in 1H26.
An analyst told StarBiz that “smart money” is already beginning to rotate into the OGSE sector.
“Waiting until 2027 could mean missing out on attractive trough valuations, as lead times for equipment procurement and asset deployment require early positioning,” he said.
The analyst said he was seeing “early signs” of green shoots in offshore maintenance and fabrication activities.
“Positioning now could allow investors to capture the potential upside head of anticipated 2027 capex inflection point,” he added.
Meanwhile, MBSB Research said it expected a recovery in PETRONAS’ capex spending in 2027, due to a few key reasons.
“We do not expect another major one-off investment on the scale of PRefChem, with the acquisition expected to complete in 2H26, allowing capital allocation to normalise towards core spending.
“Elevated crude oil prices should support reinvestment and past cycles suggesting that capex follows about one year later; and more upstream activity is needed to sustain output,” it said.
It said aggregate OGSE revenue and earnings have historically tracked PETRONAS’ capex cycle, as seen when revenue fell alongside capex in 2016, 2017 and 2021.
“We, therefore, expect a recovery in ‘real’ capex to feed through to sector earnings, although with a lag, as contracts must first be awarded and then executed.
“We expect order flow to improve from 2027, with a stronger earnings impact in 2027-2028,” it added.
MBSB Research noted that PETRONAS’ dividend is set to fall to RM27bil in 2026, down from RM32bil in 2024 and 2025. That’s the lowest payout since 2021 (RM25bil), it said, adding that it reckons the cut was partly a deliberate move to save cash for one-off commitments this year, mainly the buyout of Saudi Aramco’s 50% stake in PRefChem, along with other capital needs.
The 2027 target of RM32bil implies an 18.5% year-on-year rebound and takes the payout back to its 2024 to 2025 level, it said.
It said that target is not demanding and is in line with the 2012 to 2025 and well below the peaks of RM54bil in 2019 and RM50bil in 2022.
“With the PRefChem buyout out of the way and oil prices elevated, we expect stronger upstream cash flows to comfortably support the higher payout.
“Hence, we are not overly concerned about the 2027 target squeezing PETRONAS’ balance sheet or its capex commitments,” it said.
MBSB Research said it was positive on the oil and gas sector and its Brent crude oil price assumptions are maintained at US$90 to US$100 per barrel for 2026 and US$80 to US$90 per barrel for 2027.
“Our in-house base case assumes that the Iran war de-escalates in first quarter 2027 and that crude and product flows would normalise by mid-2027,” it said.
