Prospects have radically brightened for O&G sector, says AmInvestment

Prospects have radically brightened for O&G sector, says AmInvestment

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KUALA LUMPUR (Dec 2): AmInvestment Bank has maintained its "Overweight" rating on the oil and gas (O&G) sector, and said prospects have radically brightened with rising asset utilisation globally, which supported service providers' improving results.

In a note today, the research house said while it has "Buy" calls for MISC Bhd, Sapura Energy Bhd and Velesto Energy Bhd, its top picks are still companies with stable and recurring earnings such as Serba Dinamik Holdings Bhd and Dialog Group Bhd.

"We like the recurring income business model of Dialog and Serba Dinamik, which are involved in operation and maintenance services while Dialog's earnings visibility is further secured by the Pengerang Deepwater Terminal project with its enlarged buffer zone," it said.

AmInvestment said the results of the companies under its coverage were largely in line with expectations as five of the eight companies came within expectations, versus two outperformers and one underperformer.

"Velesto Energy registered a surprisingly strong 3QFY19 net profit from a rig utilisation of 92% with only one rig undergoing mandatory maintenance while Dialog Group enjoyed expanded plant turnaround and maintenance revenues from Petronas' five-year master service agreement.

"As in the previous quarter, Sapura Energy disappointed notwithstanding a slightly lower loss stemming from minimal early-cycle fabrication margins derived from the huge central processing platform jobs for Sarawak's Pegaga and India's KG-DWN 98/2 NELP blocks amid a crude oil price decline," it said.

The research house said Malaysia's 9M2019 contract awards rose 14% year-on-year (y-o-y) to RM9.2 billion following a lull in 1Q2019 and driven by multiple awards to Sapura Energy and Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE), which secured a RM2.5 billion Kasawari central processing platform job, while Bumi Armada secured a 30% stake in ONGC's KG-DWN 98/2 FPSO charter.

"While 3Q2019 job orders rose 76% y-o-y to RM3.4 billion, these were down 15% quarter-on-quarter.

"Westwood Global Energy Group is projecting global drilling and well services expenditure to grow 19% to US$1.9 trillion for 2019-2023 from 2014-2018," it said.