AMBANK Research has upgraded its call on the oil and gas (O&G) sector to overweight from neutral previously following its upgrade to buy for Petronas Gas and Bumi Armada, which makes its buy calls to five, two sells and one hold.
The call comes despite the ongoing volatility of crude oil prices as the down cycle may have reached a bottom with the worst experienced in April this year when Brent spot prices temporarily fell to a low of US$14 /barrel (RM58) while futures inverted to an abnormal negative US$38/barrel (RM157.6o) due to a lack of storage capacity.
However, it said oil price forecast for the year would be maintained at US$40-US$45 /barrel (RM165.9 – RM186.7) and 2021 at US$45-50/barrel (RM186.7 – RM207.4).
Year-to-date, Brent crude oil prices have averaged US$42/barrel (RM174.2) while the current spot price has recovered above US$45/barrel (RM186.7) from the year-low of US$14/barrel (RM58.08) on 22 April 2020. This is supported by US crude oil inventories declining by 6% to 508 mil barrels currently from the all-time high of 541 mil barrels in June this year.
The research house noted, second quarter ended June 30, 2020 (2Q20) results of nine companies under its coverage were mixed with two coming in above expectations and two underperformers. Bumi Armada registered stronger-than-expected results while Sapura Energy surprisingly outperformed. The underperformers were Velesto Energy and Petronas Chemicals Group.
Core 2Q20 net profit rose 19% quarter-on-quarter to RM1.6 bil largely due to Sapura Energy’s surprising turnaround from a sharp loss in the previous quarter to a slight profit, which AmBank Research said may not be sustainable in the following quarters. This was slightly supported by Bumi Armada, Yinson, Dialog Group and Petronas Gas. – Sept 4, 2020
