• After years of underinvestment following crude oil price collapse in 2014/15, we see the recovery in Malaysia offshore activities gaining pace with more field development projects planned for the next 3 years. Fabricators, OSVs and field operators are the main beneficiaries of upcoming offshore field development, in our opinion.
• We see the rise in marginal fields development as an opportunity for local service players to further enhance their positioning in the industry. We also expect some local service players to move up the value chain to becoming field operators amidst rising investment activities in upstream assets.
• We forecast Brent to trade at an average of US$65/bbl in 2020.

• Maintain Overweight on upstream players. Yinson (BUY, TP: RM7.70) remains our top pick as it rides on rising FPSO demand in Brazil while competition is limited. We also favour Hibiscus (BUY, TP: RM1.50) following its expansion plan amidst divestment of non-core assets by IOCs.

Expansion in Malaysia offshore development activities

Malaysia offshore activities are gaining pace with more field development projects planned for the next 3 years. With large discoveries becoming less common, Petronas focuses on monetising marginal fields using subsea tieback concept which is more cost-effective. It also looks to offer 4 marginal discovery fields and 3 late life assets to local players in the next bidding round. We believe these measures will continue to spur local offshore activities. As such, we expect fabricators and OSV players to benefit from these activities moving forward.

Huge investment opportunities for local players

The rise in marginal field development opens up opportunities for small-cap service companies such as Alam Maritim and Handal Energy to further enhance their positioning within the industry; the former provides pipeline installation service while the latter provides MOPU for marginal fields production. We opine that ex-RSC contractors such as Petra Energy, Uzma and Scomi Energy who have experience in marginal fields may participate in the next bidding round, hence moving up the value chain to becoming field operators. We also expect existing players such as Dialog to participate in the bidding round to deepen its investment in upstream assets.

Average Brent at US$65/bbl; OVERWEIGHT on Upstream

We are OVERWEIGHT on upstream players premised on recovery in offshore activities following underinvestment in prior years. We forecast Brent to average at US$65/bbl in 2020 which should continue to spur offshore investments.

Sector top pick; Yinson (TP: RM7.70) and Hibiscus (TP: RM1.50)

Yinson (BUY, TP: RM7.70) remains our top pick as it rides on rising FPSO demand in Brazil against the backdrop of limited competition. We also like Hibiscus (BUY, TP: RM1.50) as a pure-play oil field operator; we see there is vast opportunities for Hibiscus to pursue asset acquisitions as more IOCs are divesting non-core late-life assets while Petronas may favour lean cost operators such as Hibiscus for the next marginal fields and late life assets project award.

Source: BIMB Securities Research - 13 Jan 2020