• Oil price was steady in 1H24 despite seasonally weaker demand season. It averaged USD85/bbl which is largely in line with our 2024 Brent forecast.

• We expect more news flows in 2H24 relating to new development projects. This would require the construction of new large platforms and floating production systems. Against this backdrop, we prefer companies that provide services to greenfield development projects.

• Maintain an OVERWEIGHT recommendation on Oil and Gas sector. Our top pick are MISC (TP: RM10.30), MMHE (TP: RM0.94), Velesto (TP: RM0.34) and Hibiscus (TP: RM3.40).

Oil price was steady in 1H24 despite seasonal weak demand. Benchmark Brent oil price was steady in the trading range of USD74-92/bbl despite seasonally weak demand in 1H24. Still, it averaged USD85/bbl in 1H24 which is largely inline with our 2024 forecast. The weak demand has led to lower refining margin and higher oil inventories. The International Energy Agency (IEA) had indicated in its June 24 report that OECD oil inventories recorded its first monthly increase since Oct 23 by 32.1mn bbls in Apr 24 while preliminary data suggest a further inventory build of 48.2mn bbls in May 24. However, we believe this will reverse in 2H24 as demand is seasonally stronger during the period.

Offshore activities outlook remain encouraging. We reiterate our view that the outlook for offshore projects should remain constructive so long as oil price remain above USD60-70/bbl. We foresee contracts for several development projects to be awarded in 2H24 such as Salam-Patawali FPSO, Kikeh FPSO replacement and Lang Lebah CPP projects. This will benefit MMHE who is the largest fabricator player in the country. Besides that, Velesto’s earnings will continue to grow as its average daily charter rate (DCR) is on the uptrend and potentially to peak in 3Q24. At the same time, maintenance players such as Dayang and T7 Global will benefit from robust offshore activities as Petronas has committed to invest RM60bn p.a. over the next few years. This is inline with its plan to boost local oil and gas production to 2mn boepd by 2025 from 1.8mn boepd currently.

Maintain OVERWEIGHT. All in, we maintain an OVERWEIGHT stance on the Oil and Gas particularly on upstream players premised on the uptick in oil and gas offshore capex spending. Our top pick remains as the following MISC (TP: RM10.30), Hibiscus (TP: RM3.40), MMHE (TP: RM0.94), and Velesto (TP: RM0.34). While maintenance players are expected to do well, we believe that has been fairly reflected in its share price. Hence, we have a Sell call on Dayang (TP: RM1.79) and a HOLD call on T7 Global (TP: RM0.52). Conversely, downstream petrochemical players such as PChem (Sell, TP: RM6.00) and Lotte Titan (Trading BUY, TP: RM1.39) may continue to be affected by weak consumer sentiment amidst rising inflationary environment.

Source: BIMB Securities Research - 17 Jul 2024