AFFIN Hwang Capital has maintained its neutral recommendation on oil and gas (O&G) for next year as the research house is expecting mixed results across all subsectors.
“In our view, the bigger winners are the offshore support vessels (OSVs), subsea facilities decommissioning and fabrication yard players,” Affin Hwang Capital analyst Tan Jianyuan said in a Dec 17 note.
His observation is in line with Petronas Activity Outlook for 2020-2022, released on Dec 13, which stated that the high number of jack-up rigs and offshore maintenance activities are likely to be sustained going into 2020.
Tan noted that in the OSV space, anchor handling tug (AHT) vessels stood to benefit the most compared to the rest of the jobs. “Demand for vessels is expected to rise from an average of 111 units in 2019 to 149 units in 2020,” he said. Some companies to watch are Icon Offshore, Alam Maritim, Marine and General (M&G), Bumi Armada and Perdana Petroleum.
But subsectors such as hook-up commissioning and maintenance, construction and modification are expected to witness a drop in activity.
“Hook-up commissioning (HUC) activities in 2019 were at 6.3m manhours, exceeding guidance by 29% against Petronas’ earlier-planned 4.9m manhours. Activity levels are, however, expected to decline in 2020 to 4.6m manhours. For maintenance, construction and modification (MCM) activities, manhours turned out to be 14% lower at 15.2m manhours vs. the planned 17.7m manhours in 2019.
“As such, Petronas is currently guiding a higher MCM activity level in 2020 at 18.9m manhours (representing a 24% increase yoy). Despite a potential increase in the MCM manhour jobs in 2020, it may not necessarily translate into higher earnings potential for offshore maintenance players (such as Dayang, Carimin and Petra Energy) as MCM work generates a lower profit margin compared to HUC,” said Tan.
For stock calls, Tan is bullish over Dialog (buy, target price (TP): RM4.00) and Serba Dinamik (buy, TP: RM2.62) as these companies are expected to benefit from higher plant turnaround activities from servicing the current master service agreement.
Velesto Energy (buy, TP: 49 sen) 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 activities as well as higher AHT vessel demand in 2020. – Dec 17, 2019
