KUCHING: Researchers expect oil and gas players (O&G) to see better contract flow in the second half of the year (2H17) on the back of a recently concluded results season which saw a low number of outperformers.
Within the local scene, the recent portfolio reshuffling by national company Petroliam Nasional Bhd (Petronas) may not be seen benefiting the local upstream space as not much attention is given as far as the local services players are concerned.
“This could be due to the pullback in capital expenditure and operating expenditure – spending that was disrupted by the volatility of oil prices in the second quarter,” said Kenanga Investment Bank Bhd (Kenanga Research) yesterday.
It added that this was exacerbatred by the further delay of some contracts awards which were initially anticipated in 2Q17.
“Based on our channel checsk, the estimated RM4 to RM6 billion five-year maintenance, construction and modification (MCM) tender has been extended to October,” it said.
“Besides this, offshore support vessels (OSVs) players are also expecting the integrated logistic contract (ILC) award by end of the year.
“Recall that the tender entails 25 packages with variations of firm and call-out contracts with the option of 3 plus 2 year tenure and 5 plus 2 year tenure.
“The contract is potentially valued up to RM4 billion and expected to commence next year.”
Kenanga Research believed Dayang Enterprise Holdings Bhd and Petra Energy Bhd stood a good chance to win these MCM contracts while the listed OSV players such as Alam Maritim Bhd and Icon Offshore Bhd are in favour to win the ILC.
“Thus, we expect better contract flow in 2H17, paving for better earnings outlook in 2018.”
This came on the back of the recently concluded 2QCY17 result season whereby Kenanga Research saw a low number of outperformers within the O&G sector.
“We saw lower number of outperformers – at only four companies from nine in the previous quarter,” it added. “Note that these four counters – namely Coastal Contracts Bhd, Dialog Group Bhd, Pantech Group Holdings Bhd, and Yinson Holdings Bhd – had registered positive earnings surprises for at least the consecutive two quarters.
“On the flipside, the disappointment ratio stayed flattish at 27 per cent in 2Q17, whereby within the upstream space, these disappointments largely came from offshore services players dragged by lower-than-expected work orders and delay of contract award by oil majors.”
Following that, Kenanga Research cut its two-year forward earnings by 24 per cent and three per cent given its less optimistic view on 2H17’s earnings outlook.
It noted that the operating environment remained challenging. In 2Q17, despite recording 16 per cent quarterly growth due to seasonality, the aggregate revenue from upstream space deteriorated 11 per cent yearly across most sub-segments.
Asset-heavy players such as drillers managed to narrow their operating losses, it said, helped by higher rig utilisation resulting from a higher number of short-term contracts and lower depreciation post impairment.
Meanwhile, OSV charterers widened their operating losses dragged by poor vessel utilisation with no reprieve in charter rates despite spot charter space still active.