KUALA LUMPUR (June 29): AffinHwang Capital Research has maintained its “Neutral” rating on the oil and gas (O&G) sector and said sector earnings momentum for the recently concluded 1QCY17 result season has been positive.

“However, of late we believe the market may have somewhat mispriced the fundamentals of oil prices due to over concerns on global supply glut.

“With global GDP growth improving on the back of a recovery in private consumption, global demand may tick upwards leading to a more balanced ecosystem,” it said.

The research house said that encouragingly, total O&G contract flows in 1H17 amounted to RM10.3 billion (as of June 20) as compared to RM4.7 billion in 1H16, representing a growth of 1.2-fold year-on-year (y-o-y).

It said on a quarter-om-quarter basis, contract flows grew 1.6-fold.

“Contract flows will likely to maintain their strong momentum heading into 2H17 as we await the award of modification, construction and maintenance (MCM) contracts.

“Apart from that, tender pipelines are looking more active than previously as activity picks up from the maintenance and commissioning space, and also from the oilfield services segment. Industry players are generally seeing a more active market survey activity from clients for potential new developments,” it said.

AffinHwang however acknowledged that the recent correction in global oil prices may lead to lacklustre sentiment in the sector in the near term.

“As such, we maintain our Neutral rating on the O&G sector,” it said.

“In terms of stock picks, we continue to like Bumi Armada Bhd among large caps, and Petra Energy Bhd in the small-cap space.

“We are also now adding our recent initiation, Serba Dinamik Holdings Bhd, a maintenance, repair and overhaul service provider with more than 50% of its revenue derived from Middle East as our preferred mid-cap exposure,” it said.