The research house bumped up the O&G sector from “neutral” due to its anticipation that regional oil majors will adhere to their capital expenditure (capex) plans, capitalising on the current high oil price environment.
“This, in turn, will directly boost the prospects of local oil and gas services and equipment (OGSE) players,” it stated in a note.
At the same time, HLIB Research said Petroliam Nasional Bhd (Petronas) recorded a “decent second quarter” (Q2 FY2023) core net profit of RM18.9 billion, an increase of 14% quarter-on-quarter (q-o-q).
However, net profit was down 16% year-on-year (y-o-y) bringing the first half of 2023 (H1 FY2023) core earnings to RM40.8 billion, down 7% y-o-y.
The research house said the weaker performance was mainly due to lower average realised product prices across the board throughout the quarter as Brent averaged at US$78 per barrel (/bbl) in Q2 FY2023 (versus US$82/bbl in Q1 FY2023 and US$112/bbl in Q2 2022).
HLIB said Petronas’s H1 2023 capex stood at RM21.4 billion (up 13% y-o-y), with 18% (or about RM3.9 billion) invested in new energy initiatives.
It said that in H1 2023, the domestic capex mix stood at RM10.5 billion (up 48% y-o-y).
“We maintain our Petronas capex projection of RM50 billion for 2023 and Petronas’s dividend commitment stands at RM40 billion for 2023.
“We raise our Brent crude oil forecast to US$80-85/bbl for 2023 (EIA: US$83/bbl).”
Top O&G picks
HLIB’s revised top picks for the sector include Bumi Armada Bhd (target price (TP): 71 sen) and Wasco Bhd, formerly known as Wah Seong Corp Bhd (TP: RM1.25).
The research house predicts that Armada Kraken’s floating production storage and offloading (FPSO) issue will likely be entirely resolved by FY2023 and assume full status quo in FY2024F.
For Wasco, it is convinced the group will register bumper profits in FY2023- FY2024F from the recognition of the RM1.1 billion East African Crude Oil Pipeline (EACOP) line pipe thermal insulation job and RM558 million engineering procurement and construction (EPC) job for Yinson’s Agogo FPSO.
In addition, the group has secured two new job wins, over 200km of pipe coating services for the Rosmari-Marjoram gas offshore pipeline which starts from this month till June 2024 and over 160km of pipe coating services for the Shell Crux gas field which will commence in October and is expected to be completed by August 2024.