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Keep OVERWEIGHT; Top Picks: Dialog and Dayang Enterprise (DEHB) (Malaysia), PTT Exploration & Production (PTTEP) (Thailand), and Elnusa (ELSA) (Indonesia). Premised on the expectation of stable oil prices, we continue to favour counters with upstream exposure and international diversification amidst flagging higher uncertainties between PetronasPetroleum Sarawak Berhad (Petros) in Malaysia.
We maintain our Brent crude oil price forecasts for 2024, 2025, and 2026 at USD88, USD83, and USD80/bbl. This is premised on an optimistic outlook for the global economy in 3Q24 driven by a continued economic recovery momentum in the key markets such as the US, China and selected ASEAN economies. Overall OPEC+ compliance remains fairly good, at 105% in Jun 2024, as OPEC+ has been producing 5% lesser than the required production. The theoretical supply deficit is estimated at 0.9mbpd in 2024F and 0.3mbpd in 2025F. The market is able to absorb the additional barrels to be returned by OPEC+ backed by healthy global oil demand growth. The cartel, in our view, remains intact and would choose to support the oil market whenever necessary.
Malaysia. There has been increasing talk about potential capex cut by Petronas following the news of Petros taking over the buying and selling of natural gas produced in the state from Petronas whereby the transition will start from 2H24. The earnings impact to Petronas remains uncertain but may affect its ability to spend notwithstanding that it has committed to pay sizeable dividend to the Federal Government. While we may see some potential operational disruption in the near term, we still assume a resolution to be achieved between these two involved parties without jeopardising existing productions and future domestic investments to capture the rising global gas demand. For now, we prefer upstream services players with greater exposure in the maintenance-related space, as they provide greater earnings resilience coupled with corporations with international diversification.
Indonesia and Thailand. With the expectation of higher oil prices of USD90/bbl in 2H24, we continue to like players with upstream exposure. ELSA is in a sweet spot amidst the rising O&G exploration activity in Indonesia and higher petroleum demand amidst undemanding valuation (0.7x P/BV), with a decent ROE and earnings growth. PTTEP is our preferred pick in Thailand. The medium-term (2024-2028) outlook remains strong as sales volume is projected to grow at a 5% CAGR.
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