KUALA LUMPUR: CIMB Equities Research is maintaining its Overweight recommendation for the oil and gas (O&G) sector due to its importance in the government's Economic Transformation Programme (ETP) and the contract pipeline arising from Petronas’s capex.
“Our top picks are SapuraKencana among the big caps and TH Heavy among the small caps,” it said on Tuesday.
The research house had, in light of the oil price weakness, checked with the companies in its oil & gas portfolio on the stability of their order books.
“The feedback is all-around positive, with the managements assuring us that their companies' contractual terms and rates are intact, and that they are not tied to the oil price,” it said.
To recap, Malaysian oil & gas companies are service providers with operations in various segments along the value chain, from retail and distribution in the downstream to seismic and marine support in the upstream.
The service providers are, therefore, not directly affected by the oil price volatility although SapuraKencana has exposure to exploration and production through SapuraKencana Energy Inc or SKEI (formerly Newfield).
Also, most of the small- to mid-cap companies operate domestically, with Petronas as the ultimate client, which contributes to some stability in earnings.
Among the small- to mid-cap companies, Perisai, which has a jack-up working for Petronas, stressed that its contracts are not dependent on oil prices while TH Heavy Engineering, whose FPSO vessel has been committed to Nippon Oil, said that the client is not revising the contractual terms despite the softening of the oil price.
Wah Seong, Perdana and Alam said that works continue to be in active mode and that it is business as usual for them.
The bigger caps, namely SapuraKencana, UMW-OG and Bumi Armada, are the ones with significant operations outside Malaysia.
UMW-OG said that its drilling contracts in various ASEAN countries remain securely in place and that there are no provisions for price revisions in the contracts while Bumi Armada confirmed that its order book, which is mainly driven by long-term FPSO contracts all outside Malaysia, is locked in, with no oil price connection in it.
SKEI contributes only an estimated 12% to SapuraKencana's bottomline as the bulk of the company's earnings still comes from the provision of various services in Malaysia and abroad, with the drilling business, which is backed by multi-year contracts, being the main contributor.
“It is encouraging that the companies are unperturbed by the adverse oil price movements that resulted in the recent share selldown and that they are sticking to their growth plans and even eyeing M&A opportunities as the sluggish market has thrown up attractive valuations.
“UMW-OG, which currently operates one semi-sub and five jack-ups, may consider other drilling assets, such as drillships and tender rigs, as potential acquisitions.
“We do not expect Petronas to cut back on its spending at the current oil price levels although it may review it if the oil price drops to US$60 a barrel, which we understand is the breakeven point for newer initiatives such as marginal field development and enhanced oil recovery. See overleaf for more comments.
“We advise investors with a long-term investment horizon to take advantage of the recent share price correction to accumulate,” it said. - The Star
http://www.thestar.com.my/Business/Investing/2014/10/21/CIMB-Research-keeps-oil-and-gas-sector-as-Overweight
“Our top picks are SapuraKencana among the big caps and TH Heavy among the small caps,” it said on Tuesday.
The research house had, in light of the oil price weakness, checked with the companies in its oil & gas portfolio on the stability of their order books.
“The feedback is all-around positive, with the managements assuring us that their companies' contractual terms and rates are intact, and that they are not tied to the oil price,” it said.
To recap, Malaysian oil & gas companies are service providers with operations in various segments along the value chain, from retail and distribution in the downstream to seismic and marine support in the upstream.
The service providers are, therefore, not directly affected by the oil price volatility although SapuraKencana has exposure to exploration and production through SapuraKencana Energy Inc or SKEI (formerly Newfield).
Also, most of the small- to mid-cap companies operate domestically, with Petronas as the ultimate client, which contributes to some stability in earnings.
Among the small- to mid-cap companies, Perisai, which has a jack-up working for Petronas, stressed that its contracts are not dependent on oil prices while TH Heavy Engineering, whose FPSO vessel has been committed to Nippon Oil, said that the client is not revising the contractual terms despite the softening of the oil price.
Wah Seong, Perdana and Alam said that works continue to be in active mode and that it is business as usual for them.
The bigger caps, namely SapuraKencana, UMW-OG and Bumi Armada, are the ones with significant operations outside Malaysia.
UMW-OG said that its drilling contracts in various ASEAN countries remain securely in place and that there are no provisions for price revisions in the contracts while Bumi Armada confirmed that its order book, which is mainly driven by long-term FPSO contracts all outside Malaysia, is locked in, with no oil price connection in it.
SKEI contributes only an estimated 12% to SapuraKencana's bottomline as the bulk of the company's earnings still comes from the provision of various services in Malaysia and abroad, with the drilling business, which is backed by multi-year contracts, being the main contributor.
“It is encouraging that the companies are unperturbed by the adverse oil price movements that resulted in the recent share selldown and that they are sticking to their growth plans and even eyeing M&A opportunities as the sluggish market has thrown up attractive valuations.
“UMW-OG, which currently operates one semi-sub and five jack-ups, may consider other drilling assets, such as drillships and tender rigs, as potential acquisitions.
“We do not expect Petronas to cut back on its spending at the current oil price levels although it may review it if the oil price drops to US$60 a barrel, which we understand is the breakeven point for newer initiatives such as marginal field development and enhanced oil recovery. See overleaf for more comments.
“We advise investors with a long-term investment horizon to take advantage of the recent share price correction to accumulate,” it said. - The Star
http://www.thestar.com.my/Business/Investing/2014/10/21/CIMB-Research-keeps-oil-and-gas-sector-as-Overweight
