• During recent 3QCY24 result season, Dayang and Velesto outperformed while MISC and Hibiscus lagged our earnings estimates though the latter are expected to make a strong come back in 4QCY24. Overall, performance of other companies under our coverage were largely within expectation.

• The geopolitical conundrums has dragged the sentiment over potential slowdown in offshore activities. Notwithstanding, we see it as a market correction rather than a full-blown downcycle given our oil price scenario outlook remain intact.

• As such, we think recent stock price weakness within Oil and Gas sector as an opportunity to accumulate at lower level. Key re-rating catalysts to the sector include: (i) a new round of contract award and orderbook replenishment; and (ii) higher dividend payout.

• Maintain an OVERWEIGHT stance on the Oil and Gas particularly on upstream players. Our top picks are MMHE (TP: RM0.94), Velesto (TP: RM0.34), MISC (TP: RM10.30), and Hibiscus (TP: RM3.40). We also upgraded Dayang to a BUY with unchanged TP of RM2.30 given the weakness in share price.

Upstream Service Players Staged an Encouraging Performance

In 3QCY24, both Dayang and Velesto’s earnings beat our full-year estimates, thanks to better-than-expected profit margin amidst stronger daily charter rate for offshore rigs and vessels. Sapura Energy also staged a greater showing but the sustainability is at risk given that the outperformance is likely to be aided by reversal of contingency cost provision. Similarly, Petdag also temporarily benefit from favourable Jet Fuel price that lagged lower product cost.

MISC and Hibiscus to Come Back Stronger in 4QCY24

On the other hand, both MISC and Hibiscus showed a weaker results QoQ and YoY though this is expected to be temporary as new asset will start to generate income in 4QCY24; MISC has announced the first oil for FPSO Mero 3 that was achieved in early Nov 2024 whilst Hibiscus has completed the acquisition of producing gas fields from TotalEnergies Brunei in late Oct 2024.

Petrochemicals Outlook Remain Challenging but Priced-in, We Think

PChem also surprised the market with its first quarterly losses. However, this was mainly due to unrealised forex losses that is one-off in nature. Relatively, Lotte Titan’s 10th consecutive quarterly losses are more concerning which is well reflected in its share price performance

Geopolitical Conundrum Drags the Sentiment; Maintain OVERWEIGHT

The sector’s outlook is clouded with negative sentiment over geopolitical issues such as (i) unresolved conflict between Petros and Petronas over the role of sole gas aggregator in Sarawak, and (ii) potential incentives from Trump’s administration to boost shale drilling that may weigh on oil price. Notwithstanding, our oil price assumption for 2025 is kept at USD75/bbl and this will to encourage investment in offshore projects. While there may be some slowdown in near term, we see it as a correction rather than a full-blown downcycle – offshore service rate will cool down to allow for a more sustainable pipeline of projects

Source: BIMB Securities Research - 3 Dec 2024