Oil majors set to revisit capex plans due to higher oil prices
PETALING JAYA: The contract flows in the oil and gas sector in Malaysia are likely to improve this year, with oil majors set to revisit capex plans due to higher oil prices.
Affin Hwang Capital Research noted that while oil price were expected to trade in the US$50 to US$55 per barrel range in 2017, it may be enough for oil majors to relook and raise their initial capital expenditure (capex) plans.
The research house expects contract flows and corporate earnings growth to show a gradual recovery this year.
The total announced contract value in 2016 fell 49% year-on-year to RM12.5bil, against RM24.5bil in 2015.
“We observe that contract value bottomed in second quarter of 2016 at RM1.5bil, the lowest level seen since 2012. “Nevertheless, we expect contract flows to pick up in 2017 based on the visible tender pipeline and as oil majors revisit their capex plans on stabilising global oil prices,” it said.
Affin Hwang said its average Brent oil price assumptions of US$55/bbl for 2017 and USD60/bbl for 2018 are on expectations of a faster-than-expected drawdown in inventories following the Organisation of Petroleum Exporting Countries (Opec) and non-Opec joint effort in cutting production levels.
“The current outlook suggests downside risks to oil prices are looking more benign and, due to higher oil prices, we believe Malaysia sector contract flow could start to improve in 2017 as oil majors revisit capex plans.
“Taking that into consideration, we have also taken a bottom-up approach in selecting stocks and recommend those with low short-term liquidity risk (after conducting cash-flow analysis) and good growth catalysts that could outperform peers,” it said in a report yesterday.
Across the value chain, it said, production players will be the first to benefit from higher oil prices due to their oil-producing fields.
Shipyards, fabricators, exploration drilling operators and offshore support vessels (OSV) providers will likely to be at the tail end of the recovery.
“For sector exposure, we prefer companies that are involved in the production space as compared to exploration,” he said.
The research house upgraded its sector rating to “neutral” from “underweight” previously.
In the large-cap space, it selected Bumi Armada as its top pick, while Petra Energy is the top pick among small-caps.
It increased its target prices for Petronas Chemicals, SapuraKencana and Petra Energy, as it expects these three stocks to be the direct beneficiaries of more bullish oil prices.
Affin Hwang also revised the target prices for Petronas Gas, Dialog and Bumi Armada as it streamlined its valuation assumptions.
It downgraded Malaysia Marine and Heavy Engineering Holdings to Hold from Buy, upgraded Petronas Chemicals and SapuraKencana to “hold” from “sell”, while Bumi Armada and Petra Energy were upgraded to “buy” from “hold”.
http://www.thestar.com.my/business/business-news/2017/02/09/more-contracts-in-pipeline-for-og-industry-this-year/#GJ1phAi6Zam7tz6K.99
PETALING JAYA: The contract flows in the oil and gas sector in Malaysia are likely to improve this year, with oil majors set to revisit capex plans due to higher oil prices.
Affin Hwang Capital Research noted that while oil price were expected to trade in the US$50 to US$55 per barrel range in 2017, it may be enough for oil majors to relook and raise their initial capital expenditure (capex) plans.
The research house expects contract flows and corporate earnings growth to show a gradual recovery this year.
The total announced contract value in 2016 fell 49% year-on-year to RM12.5bil, against RM24.5bil in 2015.
“We observe that contract value bottomed in second quarter of 2016 at RM1.5bil, the lowest level seen since 2012. “Nevertheless, we expect contract flows to pick up in 2017 based on the visible tender pipeline and as oil majors revisit their capex plans on stabilising global oil prices,” it said.
Affin Hwang said its average Brent oil price assumptions of US$55/bbl for 2017 and USD60/bbl for 2018 are on expectations of a faster-than-expected drawdown in inventories following the Organisation of Petroleum Exporting Countries (Opec) and non-Opec joint effort in cutting production levels.
“The current outlook suggests downside risks to oil prices are looking more benign and, due to higher oil prices, we believe Malaysia sector contract flow could start to improve in 2017 as oil majors revisit capex plans.
“Taking that into consideration, we have also taken a bottom-up approach in selecting stocks and recommend those with low short-term liquidity risk (after conducting cash-flow analysis) and good growth catalysts that could outperform peers,” it said in a report yesterday.
Across the value chain, it said, production players will be the first to benefit from higher oil prices due to their oil-producing fields.
Shipyards, fabricators, exploration drilling operators and offshore support vessels (OSV) providers will likely to be at the tail end of the recovery.
“For sector exposure, we prefer companies that are involved in the production space as compared to exploration,” he said.
The research house upgraded its sector rating to “neutral” from “underweight” previously.
In the large-cap space, it selected Bumi Armada as its top pick, while Petra Energy is the top pick among small-caps.
It increased its target prices for Petronas Chemicals, SapuraKencana and Petra Energy, as it expects these three stocks to be the direct beneficiaries of more bullish oil prices.
Affin Hwang also revised the target prices for Petronas Gas, Dialog and Bumi Armada as it streamlined its valuation assumptions.
It downgraded Malaysia Marine and Heavy Engineering Holdings to Hold from Buy, upgraded Petronas Chemicals and SapuraKencana to “hold” from “sell”, while Bumi Armada and Petra Energy were upgraded to “buy” from “hold”.
http://www.thestar.com.my/business/business-news/2017/02/09/more-contracts-in-pipeline-for-og-industry-this-year/#GJ1phAi6Zam7tz6K.99
