KUALA LUMPUR (June 4): As Brent crude oil touched US$40 a barrel this week for the first time since March, Maybank Kim Eng is projecting the price to hover around this level for the rest of the year.
This is because there is still a lot of supply although demand has started to improve from May onwards, its oil and gas analyst Liaw Thong Jung said.
At the time of writing, Brent crude oil futures were trading at US$39.41, a significant recovery after having crashed to an 18-year low in April.
Speaking at Maybank Kim Eng's Invest Asean 2020 virtual conference today, Liaw also painted a scenario whereby major oil producers including Saudi Arabia and Russia take the initiative to keep oil prices at US$40 and below, to prevent US shale oil from staging a big comeback.
“That is a psychological point for the oil price market to balance up over the next few years,” he said.
Going forward, Liaw holds the view that oil prices would only go above US$40 in 2021, as oil demand normalises when disruption eases and supply continues to fall, and OPEC+ policy improves.
In terms of preferred O&G counters, Liaw said investors should focus on oil companies with strong balance sheets and minimal orderbook disruption, as well as those with deep pockets, which will enable them to capitalise on merger and acquisition opportunities.
“We like companies with strong cash flow generative ability even in a downturn. Putting that into perspective, we like two companies: Oil storage operator Dialog Group Bhd and FPSO operator Yinson Holdings Bhd,” he said.
Maybank Kim Eng has issued a target price of RM4.90 for Dialog and RM7.20 for Yinson.
For the downstream segment, the research house’s Head of Regional Equity Research Anand Pathmakanthan recommended Petronas Chemical Group Bhd (PChem) based on prospects of a better margin and volume growth.
“This is because PChem’s input costs are largely fixed and should oil price increase, their margin will get better. As for volume growth, new capacity coming online from the Pengerang Integrated Petroleum Complex could help,” he said.
It was also highlighted that PChem currently holds the strongest balance sheet among Malaysian companies — sitting on around RM11 billion net cash.
“In troubled times when many peers run into trouble, these guys have the ammunition to go out there and opportunistically buy companies that will add value in the long-term,” Anand said.
The research outfit holds a “Buy” call with a target price of RM6.30 on PChem.