KUALA LUMPUR: The benchmark Brent crude is expected to average US$60 per barrel, within a trading range of US$55 to US$65 per barrel in 2019 , said Kenanga Research yesterday.
It said with oil prices at the lower levels, job flows would come from the brownfield and operating expenditure (opex)-related space, with new greenfield projects becoming less economically attractive.
In its latest activity outlook, Kenanga said Petronas had highlighted possibly higher activities within the drilling, vessel chartering, maintenance and decommissioning space, benefiting players such as Velesto Energy Bhd, Alam Maritim Resources Bhd and Serba Dinamik Holdings Bhd.
“Meanwhile, our studies have also shown that during these times of volatility, a company’s underlying fundamentals play a greater importance in determining its trading valuations.
“Should sentiment or oil prices improve, our studies highlight possible bottom-fishing opportunities in Dayang Enterprise Holdings Bhd, Sapura Energy Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) and Uzma Bhd,” it said in a research note yesterday.
However, Kenanga believed cost pressures will still persist, and thus, there was a need for service providers to remain competitive.
With 2018 being a volatile year for both crude oil and share prices, valuations for oil and gas counters will trade closer in tandem with financial fundamentals, as opposed to more stable years previously such as 2013-2014.
“As such, we are led to believe that in times of high uncertainty or volatility, fundamentals such as return on requities (ROEs) play a far more important role in determining a stock’s trading valuation, than in times of more stable market sentiment or oil prices.
“Should market sentiment or oil prices revert positively, laggard players at lower valuations, and thus, lower ROEs, would display a higher re-rating than more fundamentally solid counters at higher valuations,” said the research house. – Bernama