KUALA LUMPUR (Dec 18): Hong Leong Investment Bank (HLIB) Bhd has maintained its "overweight" call on the oil and gas (O&G) sector, as the research firm anticipates that oil price will persist within the range of US$85-US$80 per barrel in 2024.

The projection is premised on ongoing production cuts by the Organization of the Petroleum Exporting Countries, aimed at preemptively addressing potential reduced demand stemming from economic uncertainties until at least mid-2024, increased risk premium on crude oil due to geopolitical uncertainties, diminishing supply growth from the US and restocking drive from the US Strategic Petroleum Reserve.

“Our Brent Crude oil forecast for 2024/2025 remains at USD85/80 per barrel. Downside risks to our projections include (i) reactivation of spare capacity from Opec in the near-term, (ii) de-escalation of geopolitical conflicts, (iii) China’s slower-than-expected oil demand growth and (iv) further deterioration of global economic conditions in 2024,” it said in a note on Monday.

At the time of writing, Brent crude oil was trading up 0.69% to US$77.08 per barrel.

Despite the recent pullback in oil price to US$75 per barrel, HLIB views that sector fundamentals and outlook remain intact, especially for oil and gas services and equipment (OGSE) players, which are well-positioned to ride on the ongoing upstream capex upcycle.

The research house selected Bumi Armada Bhd as its top pick — assigning a "buy" call and target price (TP) of 71 sen — due to the group’s favourable outlook for floating production storage and offloading players.

Additionally, Bumi Armada has an undemanding valuation — forward price-earnings (PE) of five times based on the forecasted earnings for the financial year ending Dec 31, 2024 (FY2024) — in anticipation of bumper earnings in FY2024 as contribution from Armada Sterling V sets in.

It also favours Wasco Bhd (previously known as Wah Seng Corp Bhd) for the group’s niche expertise of being one of the only few pipe coaters in the world, which is well-positioned to capitalise on the rising demand for pipe coating services spurred by ongoing O&G upstream capex upcycle. It has a "buy" call and TP of RM1.27 for the stock.

“We replace Hibiscus (‘buy’; TP: RM3.07) with Velesto (‘buy’; TP: 25 sen) as one of our top picks in view of the latter’s expected strong earnings growth in the coming quarters attributed to robust utilisation and charter rate of its JU (jack-up) rigs,” HLIB added.

At the time of writing, Bumi Armada’s share price slipped half a sen or 0.98% to 50.5 sen, giving it a market value of RM2.99 billion. Velesto rose 2.22% to 23 sen, valuing it at RM1.85 billion.

Wasco was last traded on Friday at RM1.02 with a market capitalisation of RM790.39 million.