PETALING JAYA: The oil and gas (O&G) sector’s outlook appears to be positive over the coming months, supported by an upward earnings trajectory, according to AmBank Research.
While the sector had a mixed report card in the recent second quarter (Q2’21) earnings season, the research house said the core net profits for eight out of the nine stocks it covers grew 30% quarter-on-quarter (q-o-q).
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AmBank Research also maintained its 2021-2022 oil price projection at US$65-US$70 (RM267-RM291) per barrel, slightly higher than the forecasts of US$69 (RM286) per barrel for 2021 and US$66 (RM274) for 2022 by the US Energy Information Administration.Interestingly, AmBank Research’s optimistic view came after the decision by Saudi Arabia on Sunday to cut October official selling prices for all crude grades sold to Asia by at least US$1 (RM4.15) a barrel.
The price cuts by the world’s largest crude oil exporter were larger than expected, according to a Reuters poll of Asian refiners. However, the cuts were not extended to other regions.
AmBank Research said that it has retained its crude oil price forecasts as the US’ inventories slid 15% from the year-to-date peak of 502 million barrels on March 26 to below pre-pandemic levels at 425 million barrels currently.
It is worth noting that the current US inventory level is 5% below the 2019 average of 448 million barrels.
“While US shale production could rebound and the Organisation of the Petroleum Exporting Countries may continue to raise production quotas against the backdrop of the brighter oil price environment, this could be mitigated by rising global demand on the back of Covid-19 vaccine rollouts in the second half of 2021,” it said in a note yesterday.
AmBank Research has maintained its “overweight” call on the O&G sector, with eight “buy” calls and only one “sell” call on the individual stocks.
The “sell” call was on Serba Dinamik Holdings Bhd, which has yet to announce its latest results at the time of release of AmBank Research’s sector report.
“Excluding Serba Dinamik’s Q2 results which have yet to be announced, the first half of financial year 2021 (H1’21) earnings delivery of the eight companies under our coverage were mixed as three were above our expectations, two underperformed and three were within expectations, versus four outperformers, two in line and two underperformers in Q1’21.
“The companies registering above-market H1’21 results were Bumi Armada Bhd, Hibiscus Petroleum and Petronas Chemicals Group Bhd while Dialog Group Bhd and Sapura Energy Bhd suffered from higher-than-expected operating costs amid the continuing Covid-19-imposed movement restrictions,” it said.
AmBank Research also noted that the O&G sector’s new contract awards in H1’21 rebounded 2.6 times year-on-year to RM5.6bil, largely from multiple jobs awarded to Sapura Energy.
The sharp recovery stems from the spending collapse to only RM569mil in Q1’20 due to the earlier Saudi-Russia price war and the onset of the Covid-19 pandemic.
“Even so, we note that contract rollouts are still being impacted by the global pandemic, movement restrictions and energy transition policies, which caused Q2’21 awards to decrease 33% q-o-q to RM2.2bil.
Meanwhile, in a separate note issued by KAF-Seagroatt & Campbell Securities, it is also optimistic on the outlook of the O&G sector.
The research house, however, is more inclined to favour companies with exposure to the downstream and tanker businesses.
“Our overall view on the oil and gas sector remains focused on commodity-based players in the short term, but we would like to highlight that the upstream service provider subsegment is showing early signs of recovery. We opine that investors should monitor the upstream service providers’ space closely in the coming months for potential rerating in the subsector,” it said.
KAF-Seagroatt & Campbell Securities’ top picks for the sector are PetChem and MISC Bhd.