Bright order flow prospects for local oil & gas sector

PETALING JAYA: AmResearch has maintained its overweight call on the oil and gas sector as order flow prospects remain bright at this stage with rising asset utilisation globally which supports service providers’ improving earnings.

“Our base-case scenario assumes that the Covid-19 pandemic will not have a prolonged impact on crude oil prices and global demand,” AmResearch said in a report.

While the impact of the Covid-19 pandemic is still uncertain at this stage, Brent crude oil price has fallen almost 10% since the beginning of the year to just above US$52 a barrel currently, signalling the potential dampening of global oil demand as US oil inventories have risen 3% year to date to 443 million barrels.

“Nevertheless, we maintain our 2020–2021 crude oil forecast of US$60–65 a barrel for now with Opec and its partners looking at raising their production quota reduction of 2.1 million barrels this year, with the joint technical committee of the Opec+ group recommending additional cuts of at least 600,000 barrels/day.”

While AmResearch has buy calls for Sapura Energy Bhd and Velesto Energy Bhd, its top picks are still companies with stable and recurring earnings such as Serba Dinamik Holdings Bhd and Dialog Group Bhd.

“We like the recurring income business model of Dialog and Serba Dinamik, which are involved in operation and maintenance services while Dialog’s earnings visibility is further secured by the Pengerang Deepwater Terminal project with its enlarged buffer zone.”

It noted that the fourth-quarter (Q419) results of the seven companies under its coverage were more volatile as only two companies – Petronas Gas Bhd and Serba Dinamik – came in line with expectations compared to five in FY19. Among them, three companies (MISC Bhd, Sapura Energy and Velesto Energy) disappointed expectations versus two outperformers (Bumi Armada Bhd and Dialog Group).

On a year-on-year (y-o-y) comparison, the sector’s Q4’19 net profit declined 9% due to MISC’s lower number of petroleum vessels, Petronas Gas’ reduced gas transportation revenue under the new incentive-based regulatory regime and low margins on Sapura Energy’s early-cycle fabrication jobs.

Malaysia’s 2019 contract awards slid 6% yoy to a lower-than-expected RM11.5 billion (RM48.3 billion) following a lull in Q1’19 and slower pace in Q4’19, which registered declines of 35% quarter-on-quarter and 46% yoy.

“We view this as the remaining fallout from the 2015-2017 award cycle dislocation.

Over the medium to longer term, we expect offshore projects in Brazil, Mexico, the Middle East and West Africa to gain traction with Sapura Energy and Malaysia Marine and Heavy Engineering Holdings Bhd being selected for Saudi Aramco’s long term agreement programme, which allows them to bid for the kingdom’s massive offshore projects that could reach US$150 billion over the next 10 years.”

source https://www.thesundaily.my/business/bright-order-flow-prospects-for-local-oil-gas-sector-HM2079889