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Analysts remain ‘overweight’ on oil and gas

PETALING JAYA: Analysts are maintaining an “overweight” call on the oil and gas sector in view of stabilising crude oil prices and reimposed sanctions on Iran and Venezuela.

In addition, Malaysia’s order flows in the second quarter of 2018 are likely to be steady, with Sapura Energy Bhd recently securing RM1.8bil of fresh contracts comprising engineering, procurement, construction, installation and commissioning (EPCIC) and rig charters.

Sapura Energy was the most actively traded stock yesterday, with 195.4 million shares being done and closing 1.6% higher to 65.5 sen. AmInvestment Bank and Affin Hwang Capital are both projecting Brent crude oil to trade in the range of US$70 to US$75 per barrel in 2018. As for 2019, Affin Hwang Capital is projecting for the Brent price to be flat at US$75 per barrel.

However, AmInvestment Bank has a lower projection for 2019 of US$66 per barrel, dampened by a projected 11% year-on-year (y-o-y) increase in US daily production to 11.9 million barrels.

“The Organisation of the Petroleum Exporting Countries (Opec) production quotas that were initiated in the beginning of last year appear to have suppressed US oil inventories, which have fallen by 15% y-o-y to 438 million barrels.

“However, US crude inventory has risen by 6% since mid-January, as US daily oil production has exceeded 10 million barrels and is expected to reach 11 million barrels by the end of this year,” said AmInvestment Bank in a sector update report.

Meanwhile, the Opec and non-Opec allies have decided not to raise production output effective next month, lowering the compliance rate to 100% from 152% in May.

According to Affin Hwang Capital, this would translate to a 900,000-barrels-per-day incremental production, with Opec raising 600,000 barrels per day back to the initially agreed 1.2 million barrels per day.

Apart from that, AmInvestment Bank is of the view that one of the new Pakatan Harapan government’s options to raise revenue following the revelation of the nation’s debt at RM1 trillion would be to ramp up Petronas’ production against the backdrop of improved crude prices.

This would mean a substantive refocus on spending for exploration and production activities, despite Petronas’ plans to invest in further downstream operations such as speciality chemicals and renewable energy solutions, including solar. “As such, we expect the asset utilisation rates for local service companies to improve significantly in the medium to longer term, even though charter rates could remain unexciting in light of excess capacity globally,” it said.

Petronas Dagangan Bhd, the retail arm of Petronas, closed 0.5% higher at RM24.40.

Malaysia’s first-quarter 2018 contract awards jumped 68% quarter-on-quarter and 36% y-o-y to RM2.7bil due to Sapura Energy securing the EPCIC work for the Pegaga CPP and Serba Dinamik Holdings Bhd’s EPC and operation and maintenance jobs.

AmInvestment Bank’s top picks are companies with stable and recurring earnings such as Dialog Group Bhd and Yinson Holdings Bhd. “Dialog’s earnings visibility is secured largely by the Pengerang Deepwater Terminal project with its enlarged buffer zone, while Yinson’s Ghana floating production, storage and offloading vessel project will provide the earnings momentum over the next two years.

“Our other ‘buys’ are Malaysia Marine and Heavy Engineering Holdings Bhd, Sapura Energy and Bumi Armada Bhd, which are trading below their intrinsic values,” said AmInvestment Bank.