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KUALA LUMPUR: AmInvestment Bank Research has upgraded the oil and gas sector to “overweight” despite ongoing volatility in crude prices, as the down cycle may have bottomed out.
After the recent quarterly earnings season, the research house has five “buy” calls in the sector and only two “sell” calls and one “hold”, leading to the improvement of the sector.
Two of the nine oil and gas companies under the research house’s coverage exceeded expectations.
“Land fleet
posted stronger than expected results, mainly due to a consistent contribution to revenue from the Armada Kraken group’s floating production, storage and offloading vessel, which had been operating suboptimal for the past two years.
“Sapura Energy it also surprisingly outperformed with an unusual margin increase in its engineering and construction division along with higher asset utilization, “he said.
Meanwhile, the worst performers were Velesto Energy and Petronas Chemicals Group.
For 2020, AmInvestment kept its oil price forecast between $ 40 and $ 45 a barrel. He also kept his 2021 oil price forecast between $ 45 and $ 50 a barrel.
According to the research house, the lowest point for the crude oil market was when Brent spot prices temporarily fell to a low of US $ 14 a barrel in April, while futures were reversed to an abnormally negative value of US $ 38 a barrel due to lack of storage capacity.
AmInvestment expects oil producers to continue their planned production cuts for this year as global demand remains depressed amid prolonged Covid-19 movement restrictions and social distancing measures.
Petronas has already announced cuts of 21% for capital and 12% for operating expenses this year.
So far, Exxon Mobil, Royal Dutch Shell, Saudi Aramco and Petrobras have announced investment cuts of 20% to 30% for 2020.
In 1H2020, the award of new contracts to Malaysian operators fell 62% year-on-year to RM2.2bil, with the worst consequences yet to come in 2H2020 onwards, AmInvestment said.
The “buy” calls from the research house are Petronas Gas, Dialogi Group, Serba Dinamik Holdings, Petronas Chemicals Group and Bumi Armada. Their “sale” calls are Sapura Energy and Velesto Energy, while MISC is a “hold”.
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