KUALA LUMPUR, March 9 (Bernama) – AmInvestment Bank has downgraded the oil and gas (O&G) sector to ‘underweight’ from ‘overweight’ following the aggressive oil price war launched by Saudi Arabia targeting its rivals after Russia refused to participate in the Organisation of the Petroleum Exporting Countries’ (OPEC) proposal to cut production.
It was reported that Saudi Arabia would produce over 11 million barrels per day (bpd) next month from the nine million bpd currently, while announcing a discount of 20 per cent in key markets.
“Saudi Arabia is set to announce that its crude into northwest Europe, a key market for Russian barrels, will be sold at discounts to its reference price of over US$8 per barrel compared to that of March 2020,” it said in a note today.
The investment bank viewed that this new price war impact is likely to be worse than the 2014–2017 period, and has thus lowered its 2020 oil price forecast to US$40–US$45 per barrel.
Brent spot crude oil price has fallen by 32 per cent since the beginning of the year to US$45 per barrel while April futures contract is trading lower at US$35.80 per barrel currently.
It has revised calls to ‘sell’ for Bumi Armada, Dialog Group, MISC, Sapura Energy, Serba Dinamik and Velesto Energy.
“Even though Dialog Group and Serba Dinamik have stable and recurring earnings profile underpinned by operation and maintenance services and their strategically located projects in Pengerang, the current deterioration in sentiment for the sector will still translate to substantive selling pressure.
“Hence, we have lowered Dialog’s fair value to RM2.81 and Serba Dinamik to RM1.90,” it said.
Meanwhile, KAF Equities downgraded the sector to ‘neutral’ from ‘overweight’, while naming five stocks that will be affected by bearish oil prices, namely Coastal Contracts (Hold, target price (TP): RM0.82), Bumi Armada (Hold, TP: RM0.19), Yinson (Hold, TP: RM6.01), Sapura Energy (Sell, TP: RM0.07), Petronas Chemicals (Hold, TP: RM4.91).
“On the other hand, in the current scenario, we consider MISC a ‘buy’ with TP of RM9.36, it being a defensive stock as tanker demand might potentially be stronger in a low oil price environment, inducing more oil contango trades,” it said.
TAGS: Oil and Gas, Equities, AmInvestment, KAF Equities, Corporates