Highlights

Perisai Petroleum (BUY, TP RM1.55) will kick-off our O&G coverage final quarter earnings season on 7 Feb. Due to the company’s bareboat charter model we expect earnings to be inline with expectations. 

We expect MMHE (HOLD, TP Under revision) BHIC (HOLD, TP RM2.10) and Bumi Armada (HOLD, TP RM4.00) to announce earnings after Chinese New Year celebrations but potential for additional Cendor provisions, a year of ‘kitchen sinking’ for BHIC and no new FPSO contracts for Bumi Armada, respectively may provide a disappointing end to the festive mood. 

Dayang (BUY, TP RM3.36), Perdana (BUY, TP RM1.70) and Wah Seong (BUY, TP RM 2.10 will post a hat trick of results on 26 Feb. We expect the partnership of Dayang and Perdana to perform inline as Dayang’s rock solid platform maintenance business and increasing OSV utilization rates underpin final Q performance. We expect Wah Seong to post below expectation results and give investors a chance to buy on weakness as fundamentals for 2013 are favourable. 

Uzma will post results in the last week of Feb which we expect to be inline, in a year that Uzma proved it can deliver both earnings clarity and growth. SapuraKencana is expected to post robust results on 21 Mar due to smooth contract execution and robust drilling operations. 

We reiterate our overweight call and our view detailed in 2013 Outlook & Strategy that share price weakness due to election uncertainty is a chance to BUY value.

Risks

Global recession. Political Risk.

Rating

OVERWEIGHT 

• Positives: We believe that the ETP driven RM300bn Capex spending to enhance exploration, EOR and Marginal fields will drive earnings in the sector. 
• Negatives: execution risk, delay in contract rollout and investors’ perceptions on previous disappointments.

Valuation

Top picks in order of preference;

•  Perdana Petroleum (BUY, TP RM1.70),
•  Perisai (BUY, TP RM1.55),
•  Uzma (BUY, TP RM2.10),
•  Dayang (BUY, TP RM3.36),
•  SapuraKencana (BUY, TP RM3.20)
•  Wah Seong (BUY, TP RM2.10).

Source: Hong Leong Investment Bank Research - 6 Feb 2013