Oil and gas sector
Maintain neutral: Based on the recently released Petronas Activity Outlook for 2020-2022, the high numbers of jack-up rigs and offshore maintenance activity are likely to be sustained going into 2020. In our view, the bigger winners are offshore support vessel (OSV), subsea facility decommissioning and fabrication yard players. Meanwhile, our top “buys” remain unchanged — Serba Dinamik Holdings Bhd, Velesto Energy Bhd and Bumi Armada Bhd.

After a six-year period, Petroliam Nasional Bhd (Petronas) has reopened the bidding for four marginal fields, which are now being categorised as “discovered resource opportunities”. The four oil clusters are Diwanga and Rhu-Ara (both in Peninsular Malaysia), and Kerisi and Bambazon (both in Sabah). Bidding for these oilfields is expected to close by May 2020. Past risk-sharing contract (RSC) winners included Sapura Energy Bhd, Dialog Group Bhd, Uzma Bhd, Petra Energy Bhd and Scomi Energy Bhd. The only RSC that has yet to be surrendered back to Petronas is with Petra Energy, whereby the contract is set to expire in June 2020.

In the OSV space, anchor handling tug (AHT) vessels stand to benefit the most. Demand for vessels is expected to rise from an average of 111 units in 2019 to 149 units in 2020. Companies with a large fleet of AHTs include Icon Offshore Bhd, Alam Maritim Resources Bhd, Marine & General Bhd, Bumi Armada and Perdana Petroleum Bhd. The average fleet utilisation rate among OSV companies stood at 62% in the cumulative nine months of 2019.

The number of well head platform structure awards is projected to increase to 10-13 units from five to six units in 2019, which will help boost the fabricators’ (Sapura Energy, Malaysia Marine and Heavy Engineering Holdings Bhd, and Carimin Petroleum Bhd) order book replenishment. While we are positive on top lines, we remain cautious about the fabricators due to the ongoing price competition and lack of sizeable central processing platforms. In our view, the positive outlook is in line with Carimin’s recent announcement to resume its expansion works at its fabrication yard in Kemaman, Terengganu.

We remain “neutral” on the oil and gas sector for 2020. In our view, Dialog (“buy”; target price [TP]: RM4) and Serba Dinamik (“buy”; TP: RM2.62) will benefit from higher plant turnaround activity by servicing its current master service agreement. Velesto Energy (“buy”; TP: RM0.49) is expected to see improving daily charter rates and stable rig demand. Meanwhile, Bumi Armada (“buy”; TP: 62 sen) is expected to benefit from higher domestic OSV work activity as well as higher AHT vessel demand in 2020. — Affin Hwang Capital, Dec 17