Kenanga Research has maintained its NEUTRAL stance on Malaysia’s upstream oil and gas services sector following the release of PETRONAS’ Activity Outlook 2026–2028, citing a largely balanced outlook amid weaker near-term demand and structural supply constraints.
In a sector note, Kenanga said the outlook remains broadly neutral for upstream service providers, as aging vessel and rig supply in the domestic market continues to be offset by a softer demand outlook for upstream activities in 2026.
While exploration activity is expected to pick up meaningfully in 2026, Kenanga believes the impact on service providers is likely to be felt over the longer term, from 2027 onwards, potentially benefiting companies such as Dayang Enterprise, Velesto Energy and Keyfield International.
However, the research house noted that upstream maintenance, drilling and offshore support vessel (OSV) requirements for 2026 have declined compared with guidance provided in the previous 2025–2027 outlook, signalling a more cautious activity environment by PETRONAS in the near term.
Despite this, Kenanga said it takes comfort in the fact that rig and OSV activity levels in 2026 are expected to be broadly flat year-on-year compared with actual 2025 levels, reducing downside risks for the sector.
The firm added that the weaker activity outlook has largely been priced into valuations of listed upstream service providers, and believes the sector may have reached bottom valuations, with a low risk of further asset impairments.
Nonetheless, Kenanga cautioned that clear catalysts remain limited in the medium term, which continues to cap upside potential for the sector.
Kenanga’s top picks in the oil and gas space remain PETRONAS Chemicals Group (PCHEM) with an Outperform rating and target price of RM4.70, and Dialog Group, also rated Outperform, with a target price of RM2.28.
