Maybank Investment Bank (Maybank IB) maintains POSITIVE on Malaysia oil and gas (O&G sector) as its general thesis on Malaysia’s oil and gas sector as not changed much since its previous report.
Besides that, see we see the possibility of Petronas’ capex being sizeable, with most subsegments seeing increased investment.
In its Sector research note, it said Energy Information Administration (EIA) has forecasted a record-high demand for oil in 2023-2025E.
“We think that the elevated crude oil price environment will be here to stay in the medium term. We maintain our POSITIVE stance on the sector with an in-house Brent Oil Price assumption of USD80 per barrel for 2024E,” it said today (Dec 21).
The research house said Petroliam Nasional Berhad (Petronas) generally met most of its activity expectations for 2023.
“Its latest 2024-2026 Petronas Activity Outlook (PAO) edition points to a more confident outlook, notably for its floating production storage and offloading (FPSO) and mobile offshore production units (MOPU); hook-up and commissioning (HUC) and maintenance, construction, and modification (MCM) and maintenance and turnaround activities as well as offshore support vessels (OSVs) and underwater services.
Maybank IB said companies under our coverage, Yinson Holdings Bhd (Yinson), MISC Group Bhd, Bumi Armada Bhd, Icon Offshore Bhd, Dialog Group Bhd, (for which we have BUY calls on) are key potential beneficiaries of the ramp-up of activities in these subsegments.
“We have been mentioning about how Petronas has been subtly hinting at a sizeable capex in 2024E. Based on our yearly observations, the group has to decide on how it is to strike a balance between 3 major decisions, capex spending; dividend commitment; and balance
sheet preservation.
The research house said it said at end-Sep 2023, Petronas sits on a net cash position of RM96.7 billion.
“Given a lower dividend commitment of RM32 billion for 2024 despite a higher average Brent crude oil price expectation of USD85 per barrel (Petronas’ forecast), we see the possibility of Petronas’ capex being sizeable, with most subsegments seeing increased investment in 2024E, in our view,” it said.
It said looking back, Petronas’ activities were in line with 2023 aspirations, with five segments that met its target.
This include rigs utilised; fixed structures fabricated; SURF; pipelay; and OSV for production ops.
Meanwhile, six segments: HWU; OSV for drilling and projects; MCM; HUC; chemicals purchased; and turnaround activities underperformed throughout the year, while decommissioning and underwater services were the key outperformers.
Maybank IB’s top picks for the oil and gas sector (BUYS) are Yinson, Velesto Energy Bhd and Wasco Bhd.
Similar to Maybank IB, RHB Investment Bank (RHB IB) OVERWEIGHT call.
It also view Petronas positively, as its PAO 2024-2026 still suggests a promising outlook for upstream services players.
“We continue to like maintenance-related players with an uptick in activities, while OSV and well decommissioning, in our view, are also bright spots within the sector.
“We maintain oil prices for 2024-2026F at USD85 per barrel, USD80 per barrel, and USD80 per barrel,” it said.
RHB IB maintains a positive stance on the outlook for upstream services players with a higher activity guidance in 2024.
“Maintenance-related players are likely to benefit from higher HUC & MCM projections in 2024, while Facilities Improvement Plans (FIPs)
including rejuvenation projects, gas generator change-out activities and other major maintenance activities could benefit a broader list of listed maintenance players.
“Additionally, in view of the supply shortage, higher total OSV demand in 2024 is likely to result in better vessel utilisation and
anchor daily charter rates, benefiting OSV players. The uptick in well decommissioning projections will bode well for Uzma.”
The research house’s top picks Yinson and Dayang Enterprise Holdings Bhd (DEHB).
However, Kenanga Research also maintains its NEUTRAL call on the sector, with a continued preference for upstream service providers, especially those in brownfield projects.
PAO (2024-2026) also aligns with Kenanga’s expectations, indicating an upswing in activities for upstream service providers in 2024, except for engineering, procurement, construction and commissioning (EPCC) players.
It said in its Sector Update, OSV segment shows significant improvement in expectations in the current activity outlook (249 for vessels supporting drilling in 2024 in the current report compared to 187 in the previous year’s activity outlook).”
“Among the OSV players, we believe Icon Offshore (NOT RATED) will be the key beneficiary due to its substantial anchor handling tug supply vessel (AHTS) and pressure safety valves (PSV) fleet.
“Expected HUC man hours are also significantly higher than Petronas’ last year’s expectations and this bodes well for upstream maintenance players like Carimin Petroleum Bhd (NOT RATED).
Meanwhile, drilling segment activity looks strong in 2024 but is largely in line with Petronas’ previous year’s outlook, Kenanga said.
Velesto, it added, will benefit from higher daily charter rates but we are concerned about its operating cost increases.
“We continue to advocate focus on the upstream services subsegment within the local oil & gas sector, especially in brownfield projects, to capitalise on the sustained increase in Petronas’ upstream capex.
“The downstream segment does not appear promising in the short to medium term due to global demand concerns.
“Additionally, we favour the midstream segment, particularly tank terminals, as the market indicates signs of bottoming out, and the surge in projects related to low-carbon storage offers growth opportunities for tank terminal operators,” it said.
Kenanga’s sector top picks are Dialog (OP; TP: RM3.10), Yinson (OP; TP: RM3.39), and Uzma Bhd (OP; TP: RM1.22).
