Kenanga still 'neutral' on oil and gas sector

4 Jan 2019

Source: The Star

PETALING JAYA: Kenanga Research expects oil and gas (O&G) contracts in 2019 to come primarily from the brownfield space as new greenfield projects could become less economically attractive this year.

With the Brent crude oil price projected to trade within the range of US$55-US$65 per barrel this year, Kenanga Research said greenfield O&G investments will be less viable at such low price level.

For the full-year 2019, Brent crude oil is expected to average US$60 per barrel.

The research house has maintained its "neutral" outlook on the O&G sector.

It said that the possible pick-up in job flows from the brownfield space will likely benefit local players such as Dayang Enterprise Holdings Bhd and Uzma Bhd.

However, it added that local jobs may come in slower for fabricators, affecting players such as Sapura Energy Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE).

Citing Petroliam Nasional Bhd's (Petronas) recent Activity Outlook 2019-2021 report, Kenanga Research said there will likely be an increase in activities within the drilling, vessel chartering, maintenance and decommissioning area.

"Overall, we believe these could benefit local names which include Velesto Energy Bhd on the back of increased drilling activities, vessel charters such as Alam Maritim Resources Bhd, Perdana Petroleum Bhd, Icon Offshore Bhd, and maintenance players such as Serba Dinamik Holdings Bhd and Dayang.

Uzma, its with track record in decommissioning, may also benefit.

"That said, we also still believe cost pressures will still persist, and thus, there is still a need for service providers to remain competitive," it stated in a note yesterday.

In the event of an improvement in sentiment or crude oil prices, the research house believes that possible bottom-fishing opportunities may arise in several counters, namely Dayang, Sapura Energy, MMHE and Uzma.

"However, given recent volatilities and uncertainties, with many names within the sector still plagued with balance sheet concerns and earnings instability, we still prefer to stick towards fundamentally more solid counters, namely Dialog Group Bhd,

Serba Dinamik and Yinson Holdings Bhd, on top of staple Petronas names," it said. Serba Dinamik is Kenanga Research's favoured pick, on the back of its commendable track record of earnings growth delivery and coupled with its superior return on equity against its peers.