PETALING JAYA: Fluctuations in crude oil prices will not affect companies’ fundamentals, as most oil and gas companies listed in Malaysian are service providers, according to Affin Hwang Research.
However, an exception is applied to companies that are oil asset owners, such as Hibiscus Petroleum Bhd
, Reach Energy Bhd and Dagang Nexchange Bhd, which predominantly generate their revenue through sales of crude oil, said the research house.
Dialog Group Bhd has exposure to upstream assets, but non-material fluctuations in crude oil prices would not significantly alter the company’s earnings profile.
The research house revised its 2024 and 2025 Brent crude oil price forecasts slightly lower to US$79 per barrel (bbl) from US$83/bbl and US$75/bbl from US$80 bbl, respectively, to reflect weaker-than-expected world oil demand in the second half of 2024.“The International Energy Agency and the Organisation of the Petroleum Exporting Countries (Opec) have revised their 2024 and 2025 global oil demand lower, particularly to reflect weakening growth in China,” the research house pointed out.
Moving forward, the upside of crude oil price is capped by the incoming Opec+’s additional supply, which is expected to come into the market incrementally starting December until end-2025.
In the event of a disruption in supply, Opec+ could use its spare capacity to bridge the gap between supply and demand.
On top of that, signs of a slowdown in global demand for crude oil, particularly from China, have led to a rise in the crude oil price’s downside risk, it said.
It has a “neutral’’ stand on the oil and gas sector.
The majority of Malaysian listed oil and gas companies do not generate their revenue through crude oil sales and the oil price movement will not have a direct impact on their profitability.
However, as service providers, these companies rely on the intensity of their upstream activities, which they may reduce in the event of a sharp fluctuation in the crude oil price, as producers may decide that increasing production is no longer profitable.
When it comes to sector positioning, it favoured companies with defensive earnings profiles.
It has “buy’’ calls on Dialog with a target price (TP) of RM3 a share and Bumi Armada Bhd (TP: 77 sen a share). They are not highly sensitive to fluctuations in crude oil prices or changes in Petroliam Nasional Bhd’s capital expenditure plan.
Despite Dialog’s exposure to upstream assets, the company’s earnings profile remains largely stable due to its reliance on midstream tank terminal operations.
Bumi Armada generates its earnings through its floating production system which supports already-producing wells.
It also has a “buy’’ call on Velesto Energy Bhd (TP: 33 sen a share). The company relies on the upstream capital expenditure of exploration activity, which is sustainable at the current level of crude oil price.
Key risks to its sector call include an escalation of geopolitical tensions, disruption in the supply chain leading to higher crude oil prices and a severe economic recession that would reduce demand for petroleum products.
