Kenanga Investment Bank (Kenanga), in its Oil & Gas sector update on July 2, 2024 (Tuesday), affirmed an OVERWEIGHT rating, citing favourable conditions in mid-stream and upstream opportunities.
The bank maintained Brent crude price forecasts at USD84/bbl for CY24 and USD79/bbl for CY25, aligning closely with Bloomberg's median projections. Expectations point to a stabilising Brent price trajectory, with a slight weakening in 3QCY24 and a strengthening in 4QCY24, driven by seasonal impacts on Western economies.
Kenanga anticipates a phased discontinuation of OPEC+ production cuts by late CY24, followed by increased production in CY25, bolstering the global crude oil market balance. Notably, non-OPEC+ countries such as the US, Canada, Brazil, and Guyana are set to drive production growth in 2024 amid ample spare capacity from OPEC.
Petronas ramps up domestic capex. Petronas allocated RM5.5b for domestic projects in 1QCY24, marking a 20% YoY increase and reflecting 52% of its total capex. This focus on upstream investments and cleaner energy solutions is expected to benefit Malaysian upstream service providers significantly.
Local upstream services flourish. Malaysian companies servicing upstream sectors report heightened demand, particularly in vessel charter rates for accommodation work boats (AWB) and anchor handling tug supply (AHTS) vessels. Short-term AWB rates soared to RM150,000/day, driven by robust brownfield maintenance activities.
OSV market dynamics. Despite global OSV supply constraints, local markets remain under-supplied relative to demand from Petronas and other oil majors. The sector anticipates steady rates due to limited new build activity among Malaysian players.
Tank terminals poised for growth. Kenanga forecasts strong demand for tank terminal storage, driven by oil futures contango and increased geopolitical risks. Companies like DIALOG are well-positioned to benefit, particularly with ongoing expansions in Pengerang, Johor.
Investment outlook. Kenanga favours DIALOG (OP; TP: RM3.18), PETDAG (OP; TP: RM23.70), and VELESTO (OP; TP: RM0.34) as top sector picks, given their strategic positioning amidst anticipated sectoral growth.
Kenanga's bullish outlook on Malaysia's Oil & Gas sector underscores potential opportunities in upstream services, midstream expansions, and strategic investments in tank terminal infrastructure.