Among our stock coverage, Petronas Dagangan (PetDag) stood out as the performer with quarterly sales volume hit the highest level since 2015. We reckoned that this stemmed from higher demand from marine segment which is fuelled by higher offshore activities. Meanwhile, the performance of other O&G companies under our coverage in 2Q23 was largely within expectation. However, Petronas Chemicals (PChem) and Reservoir Link (RL) continue to disappoint us despite our earnings downgrade made in 1Q23.
We continue to favour upstream services companies on the back of rising offshore activities amidst upcycle in upstream spending. This has led to a higher rate for offshore assets such as offshore support vessels (OSV), rigs and tankers. Accordingly, this has translated to a strong earnings in Dayang and MISC. Meanwhile, Velesto was relatively lagging as its daily charter rate (DCR) was averaged at USD96k/day in 2Q23 as compared to current market rate of c.USD130k/day. Nonetheless, the company still expects to secure higher rate similar to the market from 2024F onwards upon the expiry of existing umbrella contract with Petronas. Outside our regular coverage, we also observed similar strong earnings turnaround by other OSV players such as Perdana, Alam Maritim and Sealink.
Following a resilient earnings in 1H23, we upgraded PetDag to a BUY. This is premised on upbeat demand outlook and higher earnings forecast by 15-18%. On the other hand, we pare down our earnings revision for PChem by 11-23% and downgrade the stock to a SELL. This is largely due to weak demand outlook and rising competition from Chinese producers especially on specialty chemical side.
Maintain OVERWEIGHT call on the Oil and Gas sector as we remain sanguine on potential upcycle in O&G capex spending on lagging effect from high oil prices to offshore activities. Against this backdrop, MISC (TP: RM10.00), MMHE (TP: RM0.94), Velesto (TP: RM0.30) and Hibiscus (TP: RM1.30) remain as our top pick. Besides that, we also have a BUY call on Dayang (TP: RM1.78), Lotte Titan (TP: RM1.56), PetDag (TP: RM24.30), DNeX (TP: RM0.58), RL (TP: RM0.38) and Sapura Energy (TP: RM0.08).
Source: BIMB Securities Research - 6 Sept 2023
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