MIDF Research raised its recommendation on the oil and gas (O&G) sector to ‘positive’ from ‘neutral’ previously following the recovery in demand for crude oil.
According to Bernama, the research firm also revised the target price of Brent crude oil for this year to US $ 59 per barrel from US $ 51 per barrel previously.
"Based on the latest developments, we think the price of crude oil will continue to trade in the range of US $ 58 to US $ 65 per barrel for the first half of this year.
"In addition, oil supply is expected to continue to be actively controlled through measures to reduce crude oil production, especially from the United States (US) and the Organization of the Petroleum Exporting Countries and its allies (OPEC+)," he said in a statement on the sector update today.
MIDF added that demand for crude oil will also be driven by better transportation and prices of petrochemical products and is expected to be strong in the second half of this year following positive developments involving the Covid-19 vaccination effort.
"We raised the sector's recommendation to 'positive' for both the upstream and downstream sub-segments as we project that the sector will benefit from the upward trend in oil prices involving the potential for new contract awards following more attractive prices.
"In addition, there is also an increase in product prices for downstream industry players," said MIDF Research.
The research firm is also confident of Malaysia's O&G recovery trajectory as Petronas is now expected to increase exploration and production (E&P) spending this year to about RM40 billion to RM45 billion from RM33 billion last year.
The firm added that they chose companies with strong fundamentals, stable recurring earnings, good business segments as well as diversified results for the year.
These include Dialog Group with a target price (TP) of RM4.30, Serba Dinamik Holdings (no rating) and Gas Malaysia (TP: RM3.22).
For the companies that are expected to be affected by the oil price movement are Sapura Energy (TP: RM0.16) and Malaysia Marine and Heavy Engineering (TP: RM0.49).
In terms of dividends, MIDF Research recommends Favelle Favco (TP: RM3.00) and Petronas Gas (TP: RM17.90) on the grounds that these companies have not only recorded stable recurring income but have also been paying dividends consistently over the past three years. .
