• Keep OVERWEIGHT; Top Picks: Yinson and Dayang Enterprise. The latest Petronas Activity Outlook (PAO) 2024-2026 still suggests a promising outlook for upstream services players. We continue to like maintenancerelated players with an uptick in activities, while OSV and well decommissioning, in our view, are also bright spots within the sector. We maintain oil prices for 2024-2026F at USD85/bbl, USD80/bbl, and USD80/bbl.

• PAO 2024-2026 appears to be positive as we see some upward revisions on sub-segments’ activities in 2024-2025. Overall, we saw most subsegments not meet their planned targets in 2023, except for underwater services, well decommissioning, heavy lift structural installations, and fixed structure fabrications. Some of these upward adjustments reflect an overflow of uncompleted jobs this year to 2024. Petronas targets to sustain and grow Malaysia’s oil & gas (O&G) production to 2 mmboe/day by 2025 and beyond, and this will be supported by key projects such as Kasawari, Jerun, Rosmari-Marjoram and Lang Lebah, Gumusut-Kakap Redev and Belud Clusters among others. In the coming years, over 45 upstream projects are to be executed and more than 25 wells are expected to be drilled pa, focusing on shallow water wells in West Malaysia and Sarawak, and deepwater wells in Sabah.

• Mostly positive. Sub-segments with higher activities in 2023 are drilling (jack-up rig, tender assisted drilling rig (TADR), hydraulic workover unit (HWU)), heavy lift structural installations, pipeline installations, OSV, hookup & commissioning (HUC), and maintenance, construction & modification (MCM), well decommissioning, underwater services and plant turnaround. Meanwhile, Petronas no longer provides the medium-term outlook (post 2026).

• Our thoughts. Overall, we maintain a positive stance on the outlook for upstream services players with a higher activity guidance in 2024. Maintenance-related players (ie DEHB, Carimin Petroleum (CARIP MK, NR) and Petra Energy (PENB MK, NR)) are likely to benefit from higher HUC & MCM projections in 2024, while Facilities Improvement Plans (FIPs) including rejuvenation projects, gas generator change-out activities and other major maintenance activities could benefit a broader list of listed maintenance players. Additionally, in view of the supply shortage, higher total OSV demand in 2024 is likely to result in better vessel utilisation and anchor daily charter rates, benefiting OSV players such as Perdana Petroleum (PETR MK, NR), Icon Offshore (ICON MK, NR), and Marine & General (MARG MK, NR). The uptick in well decommissioning projections will bode well for Uzma (UZMA MK, NR).

• Risks: Weaker-than-expected oil prices and spending by the oil majors.

Source: RHB Securities Research - 21 Dec 2023