Better Performance in Light of Higher Oil Price
Overall, O&G companies under our coverage recorded better revenues in 1Q22 by c.30- 40% YoY, on average. The improvement by both upstream and downstream players was driven by higher product prices that rose in tandem with the rally in oil prices, though the impact on the bottom line varied. Hibiscus and PChem, whom are viewed as proxy to oil prices movement, produced better profits whereas downstream players such as Lotte Titan and PetDag succumbed to higher product costs. Meanwhile, upstream service companies including Velesto and MMHE revenue improved consistent with a pick-up in offshore activities up post pandemic. However, these companies remain in the losses as asset utilisation rate remained below the optimal level.
Continuous Recovery Expected for Upstream Services Companies
We revised higher our 2022 average Brent crude forecast to USD100-120 per barrel (from USD85-90 per barrel) to better reflect the firmed oil price movement in 1H2022 (YTD: USD103.8 per barrel). In view of OPEC+ missing its oil production target, coupled with stronger demand due to full global economic re-opening, we concur with consensus that oil prices could be well supported for the remaining year. However, we still see downside risk to oil prices coming from (i) the strengthening of USD, (ii) higher US shale production and (iii) potential uplifting of international sanction on Iran. Notwithstanding that, we remain sanguine with potential upcycle in O&G capex spending on lagging effect from high oil prices to offshore activities consistent with the doubling of Petronas capex to RM60b in 2022 which is higher than our initial estimate of RM40-50b. The increase is attributable to the expected catch-up in activities which were earlier disrupted by Covid19 restrictions. Notably, there are signs that offshore assets utilisation rate is gaining traction particularly in the jack-up rig space which led to a slight increase in daily charter rate in the region recently. This will bode well for Velesto’s earnings and thus potentially boosting its stock price in near term.
OVERWEIGHT Call on the Sector
We maintain our OVERWEIGHT call on the O&G sector particularly in the upstream services companies premised on the uptick in oil and gas offshore capex spending. Our top pick is Velesto (BUY, TP: RM0.28) which should register sequentially higher asset utilisation rate in coming quarters. Next on the list would be MMHE (BUY, TP: RM0.65) as its tenderbook is getting larger coming from bids on new offshore development projects, as well as higher demand for marine repair amidst the reopening of the country’s border to foreign vessels. We also have a BUY call on MISC (TP: RM8.10), Reservoir Link Energy (TP: RM0.52) and Sapura Energy (TP: RM0.15).
Source: BIMB Securities Research - 5 Jul 2022
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PCHEM2024-08-23
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SAPNRG2024-08-22
MHB2024-08-22
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MISC2024-08-22
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PETDAG2024-08-21
MHB2024-08-21
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PETDAG2024-08-21
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PETDAG2024-08-20
MISC2024-08-20
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PETDAG2024-08-20
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PETDAG2024-08-19
MHB2024-08-19
MISC2024-08-19
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PCHEM2024-08-19
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PCHEM2024-08-19
PCHEM2024-08-16
LCTITAN2024-08-16
MISC2024-08-16
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PCHEM2024-08-16
PCHEM2024-08-16
PCHEM2024-08-15
MISC2024-08-15
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PCHEM2024-08-14
MISC2024-08-14
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PCHEM2024-08-14
PETDAG2024-08-14
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PETDAG2024-08-13
MISC2024-08-13
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PCHEM2024-08-13
PETDAG2024-08-13
PETDAGCreated by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 09, 2024
Created by kltrader | Aug 09, 2024