Hlib Research Maintains 'overweight' Stance On O&g Sector

KUALA LUMPUR, Dec 18 (Bernama) -- Hong Leong Investment Bank (HLIB) Research has maintained its “overweight” rating on the oil and gas (O&G) sector and expects oil prices to remain in the US$80-US$90 per barrel range in 2024.

In a note today, the research firm selected Bumi Armada Bhd as its top pick with a “buy” call and a target price (TP) of 71 sen.

“This is due to the favourable outlook for floating production storage and offloading (FPSO) players and its undemanding valuation in anticipation of bumper earnings in the financial year 2024 (FY2024) as the contribution from Armada Sterling V sets in,” it said. 

HLIB also favours Wasco Bhd (“buy” with TP of RM1.27) for its niche expertise of being one of the only few pipe coaters in the world, which is well-positioned to capitalise on the rising demand for pipe coating services spurred by ongoing O&G upstream capital expenditure (capex) upcycle. 

However, the research house replaced Hibiscus Petroleum Bhd (“buy” with TP of RM3.07) with Velesto Energy Bhd (“buy” with TP of 25 sen) as the company is expected to rake in strong earnings growth in the coming quarters attributed to robust utilisation and charter rate of its jack-up (JU) rigs.

“Overall, we maintain our ‘overweight’ rating on the O&G sector premised on continued production cuts from the Organisation of the Petroleum Exporting Countries (OPEC) to pre-empt a potential lower demand arising from economic risk at least until mid-2024. 

“Besides, the oil price will be influenced by geopolitical uncertainties’ heightened risk premium of crude oil, and limited supply capacity growth as we believe the United States shale oil output growth will start slowing going forward, and restocking drive of the US Strategic Petroleum Reserve (SPR),” it said. 

HLIB Research anticipates Brent crude to stay at US$85 per barrel for 2024 and US$80 per barrel for 2025.

“Downside risks to our projections include reactivation of spare capacity from OPEC in the near-term, de-escalation of geopolitical conflicts, China’s slower-than-expected oil demand growth and further deterioration of global economic conditions in 2024,” it said.

HLIB noted that the fundamentals and outlook of the O&G sector remain intact, especially for oil and gas services and equipment (OGSE) players which are well-positioned to ride on the ongoing upstream capex upcycle.

It said the ongoing global offshore capex drive and rising local upstream activities from Petronas are expected to underpin the performance of OGSE providers. 

At the time of writing, Brent crude oil was trading up by 0.39 per cent to US$76.89 per barrel. 

-- BERNAMA