According to Maybank Investment Bank Research (Maybank IB) associate director of research Liaw Thong Jung, the sentiment in the O&G sector has improved and the industry players are entering a new growth cycle.
Liaw said that the O&G companies could likely spend more on capital expenditure (capex) beginning from 2019, in tandem with the cyclical recovery.
“We are positive on the Malaysian O&G sector, given the improved sentiment and the expected increase in the activities of Petroliam Nasional Bhd (Petronas) over the next three years.
“Despite the brighter outlook for the O&G sector, the full impact of an earnings recovery will come in much later due to the time-lag effect. Perhaps, by financial year 2020,” he told StarBiz.
Maybank IB’s top-five stock picks in the O&G sector are Dialog Group Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd, Sapura Energy Bhd, Velesto Energy Bhd and Yinson Holdings Bhd.
“We are selective on our stock picks, with balance sheet strength being our key criterion,” said the research house.
Petronas had previously indicated that the majority of domestic O&G activities across the service value chain would be on the rise between 2019 and 2021.
This was premised on the Petronas Activity Outlook (PAO) 2019-2021 compared to the PAO 2018-2020 issued a year ago.
Liaw said the floating production, storage and offloading (FPSO) facilities would benefit the most from the rise in O&G activities. “The number of job awards for the FPSOs is rising. About 10 to 13 new awards are up for grabs for 2019.
“The capex size is US$400mil to RM1.5bil each. Companies with a strong balance sheet would benefit and Yinson is our key pick for this,” he said.
He also added that companies in the offshore fabrication, offshore drilling and offshore support vessel (OSV) segments would benefit from the O&G sector’s cyclical recovery.
The offshore fabrication market is expected to see a progressive rise in projects for the year 2019.
This was partly due to the delay in the execution of several projects that would be carried forward to 2019-2021
For the offshore drilling segment, Liaw pointed out that enquiries and tenders have improved, with the utilisation level on the rise.
Meanwhile, as for the OSV players, Liaw said that they were now operationally lean to compete at the US$40-US$50 per barrel oil price level, following the cost cutbacks previously.
On the crude oil price forecast, Liaw said he expects the international benchmark Brent oil price to average at US$65 per barrel in 2019.
“While the oil market is improving, volatility would continue to persist.
“The three key factors shaping 2019’s oil price direction is the policy direction and compliance or execution from Opec, geopolitical risks and global demand growth,” he said.
Source: The Star