KUALA LUMPUR (Sept 24): Midstream oil and gas players are expected to continue enjoying earnings tailwinds from firm crude trade flows and tight vessel supply after their second-quarter results beat expectations on stronger operating performance, said an analyst.
Tanker rates were already strengthening before the recent conflict, supported by higher crude exports, longer-haul trade flows and tight vessel supply. While geopolitical risk premiums may moderate, RHB Investment Bank (RHB IB) expects tanker rates to remain above last year’s levels.
“Meanwhile, liquefied natural gas (LNG) shipping markets have shown signs of recovery from trough levels, with improving charter rates supporting a more stable earnings outlook.
“The favourable tanker environment should continue to support MISC Bhd’s (KL:MISC) petroleum segment, providing an earnings tailwind alongside its largely contracted LNG portfolio,” the research house said in a note to clients on Thursday.
RHB IB kept its "overweight" call on the oil and gas sector.
Among its top picks, the research house said favours MISC for its defensive and diversified earnings base, underpinned by its largely contracted LNG portfolio, attractive dividend yield and exposure to tanker rates and the floating production, storage and offloading (FPSO) upcycle.
Dialog Group Bhd (KL:DIALOG), meanwhile, offers resilient recurring-income visibility from its predominantly take-or-pay midstream operations, supported by healthy tank utilisation and further growth from the ongoing Phase 3 expansion at Pengerang Deepwater Terminals (PDT). It also stands to benefit from a supportive oil-price environment, RHB IB added.
Petrochemical prices to remain volatile in near team
RHB IB expects petrochemical prices to remain volatile in the near term, with the outlook hinging largely on the pace of supply recovery and geopolitical developments, rather than a broad-based recovery across the petrochemical complex.
For Petronas Chemicals Group Bhd (KL:PCHEM), the divergent pricing environment offers limited support for margins, with weaker urea and ammonia prices partly offset by firmer methanol prices.
“We believe the recovery in plant utilisation remains the more important near-term earnings driver,” the research house added.