O&G counters hit by major selldown

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KUALA LUMPUR: Some heavyweight oil & gas (O&G) counters took a hit yesterday, with heavy selldown in counters like SapuraKencana Petroleum Bhd, Dialog Group Bhd and Uzma Bhd, as profit-taking continued amid a lack of catalysts to drive prices higher.

Analysts noted that the sentiment on the O&G stocks, once the darlings of many fund managers, has turned soft of late.

At the close of trading yesterday, SapuraKencana shed 4.93% or 20 sen to end at RM3.86, while Dialog Group closed 11 sen or 6.21% lower to RM1.66, Uzma lost 22 sen or 5.84% to close at RM3.55.

Coastal Contracts Bhd declined 4.05% to end at RM4.50. TH Heavy Engineering Bhd was also battered, ending 8.5 sen or 10.49% down to 72.5 sen, while Daya Materials fell 1.5 sen or 5.36% to 26.5 sen.

Some analysts believed that one of the underlying reasons for the selldown was comments made by Capital Dynamics Asset Management Sdn Bhd founder and managing director Tan Teng Boo in a recent interview with The Edge Financial Daily published yesterday.

Tan said O&G counters were expensive due to their rich valuations and unsustainable profit margins, adding that investors were not seeing the returns that they should, given the prices that they had paid for their investments.

The outspoken and influential local fund manager also noted that the local O&G sector, by and large, had more “sell” calls than “buy” ratings at the moment.

RHB Research, in a note dated Oct 1, said it was turning more cautious about the sector as it believed that its upside was limited, noting that O&G project timelines in Malaysia and worldwide might see further delays.

“The increasing costs and complexities of projects, uncertainties in long-term expectations of O&G demand and the direction of crude oil prices have and will likely continue to influence global O&G majors’ capex spending,” it  said.

“Currently, Malaysian O&G stocks are valued higher than their regional and global peers, albeit at a lower earnings base and market share. We believe the premiums are unsustainable in the long run,” it added.

The research house currently has three “neutral” calls on Perisai Petroleum Teknologi Bhd, Muhibbah Engineering (M) Bhd and Daya Materials, and one “sell” call on Malaysia Marine and Heavy Engineering Holdings Bhd (MHB).

Najib will table Budget 2015 on Friday, which is expected to address, among others, if the 6% goods and services tax will be levied on petrol. Photo by Abdul Ghani Ismail

While Perisai escaped the selldown yesterday, the stock inched up one sen to close at RM1.29, Muhibbah Engineering and MHB were not spared, slipping one sen (0.33%) and three sen (1.01%) to close at RM3.06 and RM2.94, respectively.

Prime Minister Datuk Seri Najib Razak will table Budget 2015 on Friday, which is expected to address, among others, if the 6% goods and services tax will be levied on petrol.

Another factor which might have affected the O&G stocks was the depressed Brent crude oil price. It slipped further towards US$92 (RM300) a barrel yesterday, a 27-month low.

Reuters, in a report, said the price collapse in the last few months suggested that the era of relatively high prices might be coming to an end as production increases faster than consumption.

This article first appeared in The Edge Financial Daily, on October 8, 2014.