HONG LEONG IB Research said it expects Malaysian oil and gas service providers to face margin pressure for new projects run by state energy firm Petronas after its own earnings have dropped.

Petronas's earnings before income and tax (EBIT) margins dropped to 31 percent last year from 35 percent in 2009 due to elevated operating costs in the oil and gas sector. For a related story, see

"To contain costs, Petronas is likely to induce more competition by open tender for new projects. We expect increased competition and margin pressure for new projects," Hong Leong said in a note to clients.

Hong Leong said it expects Petronas projects like the $19 billion petrochemicals and refinery complex in south Malaysia to be delayed as it has high imported material requirements and could shrink the current account surplus.

The delay could affect companies that are keen to win jobs like onshore fabricators like Muhibbah Engineering, equipment provider Pantech Group Holdings as well as downstream oil and gas firms such as Dialog, Petronas Chemicals and Petronas Gas, Hong Leong said.

The investment bank said it preferred oil and gas service providers with huge, locked in order-books that can weather any deferment of new projects. These include Dayang, SapuraKencana, Bumi Armada, Scomi Energy and Uzma.

Bought in Feb 2013. Top up when it dropped below RM17.00. Long term investment.