Oil & gas counters on Bursa gain as Brent crude tops US$40 a barrel

PETALING JAYA: Oil and gas (O&G) stocks were among the top 20 most active counters on Bursa Malaysia today as Brent crude oil prices climbed above the US$40 (RM170.80) a barrel level for the second time this month.

Barakah Offshore Petroleum Bhd (+100%), Bumi Armada Bhd (+11.36%), Velesto Energy Bhd (+6.67%), KNM Group Bhd (+15%), Hibiscus Petroleum Bhd (+10.08%), Icon Offshore Bhd (+8.7%) were in positive territory, pushing the Bursa Malaysia Energy Index up 5.56% or 41.83 points to 794.44.

“The recovery of Brent oil prices towards the US$40 a barrel may see O&G stocks recovering in tandem,” Malacca Securities said.

Affin Hwang Capital lifted its rating of the O&G sector – and that of telcos, auto and auto parts, and plantations – to ‘neutral’ from ‘underweight’ in the recent weeks to account for the better market liquidity, where it largely believes that stock prices in these sectors may not revert to the March lows, and also as it take into account the gradual recovery in earnings.

It said the Malaysian O&G sector will experience yet another period of uncertainty with depressed global oil prices and capex cuts affecting work activities. It expects Brent crude oil prices to trade in the range of US$30-35 a barrel moving into the second half of 2020.

Although the market is liquidity driven, it believes that sentiment still hinges on global oil prices, but ultimately is backed by fundamentals.

“With our relatively conservative Brent oil price assumption of US$30-35 a barrel expecting a longer-than-expected time for the oil market to rebalance, we recommend focusing on defensive O&G plays like Dialog Group Bhd.

“We believe capex-dependant players such as the rigs, offshore support vessels and fabrication segments will be most severely impacted versus other services providers like maintenance,“ Affin Hwang said, adding that it has ‘sell’ calls on Sapura Energy Bhd, Velesto Energy, Bumi Armada and Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), which are in those exposed segments.

It expects global oil prices to remain volatile amid data-driven news flow. Most important will be Opec+’s (Opec and allies) compliance with an existing production cut deal. Any discouraging development could affect the current deal, which will badly impact the oil market supply demand situation.

The research house said any quicker recovery in global oil demand could see further upside to the current US$40 a barrel oil price. This could lead to capex being revised upwards, leading to a higher work activities and contract flow.

“We believe downside risk from further revision in capex would be unlikely at this juncture, even if oil prices were to fall closer to our current assumption.”

For sector exposure, it favours a defensive play like Dialog standing to benefit from higher storage utilisation and rates under a low oil price environment. It upgraded Serba Dinamik Holdings Bhd to a buy from hold, as it raised its target price to RM2.15 from RM1.80.

It recommended a sell on PetChem on a slow projected recovery for product average selling prices, and PetDag as retail and commercial sales volume get impacted. It also recommended sells on MMHE, Sapura Energy, Velesto Energy and Bumi Armada due to their high capex business.

source https://www.thesundaily.my/business/oil-gas-counters-on-bursa-gain-as-brent-crude-tops-us-40-a-barrel-BC2589939