Analysts prefer FPSO and maintenance O&G players amid Petronas' activity boost next three years
31 Jan 2025, 12:19 pm
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KUALA LUMPUR (Jan 31): Analysts favour floating production storage and offloading (FPSO) and maintenance-related oil and gas stocks, as the Petronas Activity Outlook 2025-2027 indicates a rise in maintenance activities over the next three years.

In the outlook report released on Tuesday, the national oil company guided for an average of 367 facility improvement projects per annum to be carried out in the next three years, compared with 300 projects guided last year, according to RHB Investment Bank (RHB IB).

Additionally, oil prices are projected to stay at US$70 (RM309.56) to US$80 per barrel in the long term.

Petronas also remains committed to sustaining Malaysia’s production target of two million barrels of oil equivalent per day (mboepd), versus 1.7 mboepd in 2024.

“We continue to favour the maintenance space, which should feel the least impact from the spending scaleback, given the importance of maintaining production levels for operating cash flow generation purposes,” RHB IB said in a note on Friday.

Meanwhile, hookup and commissioning (HUC), and maintenance, construction and modification (MCM), decommissioning, as well as plant turnaround are the sub-segments which will see higher activities this year, flagged RHB IB.

The MCM-HUC players that are likely to see resilient work orders include Dayang Enterprise Holdings Bhd (KL:DAYANG), Petra Energy Bhd (KL:PENERGY), T7 Global Bhd (KL:T7GLOBAL), Deleum Bhd (KL:DELEUM) and Carimin Petroleum Bhd (KL:CARIMIN), while Dialog Group Bhd (KL:DIALOG) should benefit from an increase in plant turnaround activities, said RHB IB. 

The research house maintained its 'overweight' rating for the O&G sector, with its top picks being Bumi Armada Bhd (KL:ARMADA), Dayang and Yinson Holdings Bhd (KL:YINSON).

Besides Dialog, Hong Leong Investment Bank (HLIB) Research also sees Steel Hawk Bhd (KL:HAWK) as a potential beneficiary of plant turnaround activities, as the company in November last year secured five packages from Petronas for the provision of construction and modification works for the latter’s downstream operating units.

Offshore support vessel (OSV) and drilling rig players, on the other hand, are expected to see a softer outlook this year, as drilling activities will be scaled down sizeably. RHB IB expects the overall offshore support demand to decline by 9% year-on-year.

“We anticipate project delays for offshore fabrication, pipeline installation and decommissioning, with a more prominent uptick in activities starting from 2026 onwards,” RHB IB said.

According to HLIB, the need for drilling rigs is set to ease in 2025 at 20 units, from 23 in 2024. This is mainly due to a demand slowdown for jack-up rigs, which is down to 10 fleets this year, compared with 14 fleets last year.

“The fall in rig demand is in tandem with the lower anticipated exploration/appraisal activities in 2025, as Petronas has put on hold several upstream exploration works in Sarawak, in view of the ongoing Petronas-Petros saga, based on our checks,” HLIB said.

Therefore, the research house expects Velesto Energy Bhd’s (KL:VELESTO) earnings to decline in the financial year ending Dec 31, 2025, in anticipation of lower utilisation and charter rates for new contracts secured this year.

Although the number of OSVs required for production operations in 2025 remains largely steady at 118 units (2024: 120), demand for drilling and project vessels is set to decline to 220 units (2024: 250), noted HLIB.

The lower project vessels are due to weaker requirements for workboat/sarge and anchor handling tug and supply (AHTS), as drilling and transportation and installation (T&I) activities are expected to shrink this year.

HLIB believes that Perdana Petroleum Bhd (KL:PERDANA), Marine & General Bhd (KL:M&G) and Sealink International Bhd (KL:SEALINK) should see their earnings peak in 2024, as charter rates growth may be capped going forward, while Keyfield International Bhd’s (KL:KEYFIELD) earnings should be aided by its recent fleet expansion.

Nonetheless, HLIB maintained its 'neutral' stance on the O&G sector, with its top picks being Dialog and Wasco Bhd (KL:WASCO).

Edited ByIsabelle Francis
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