With oil price averaging US$68/barrel in 3QFY09 and major economic indicators showing signs of a global economic recovery, we believe something is brewing in the O&G industry. There has been no major O&G contract award in the past 1 year and we believe these are due anytime now. We maintain Overweight on the sector and upgrade our sector average PER valuation to 11x from 9x previously. Our top picks include Alam, Kencana and Wah Seong, which are expected to provide a potential upside of 30% to 60% from their current share prices over a 12-month period.
Something’s brewing. The major jobs include:
1) upcoming deepwater projects, with the most immediate one being the Malikai oilfield;
2) US$8.7bn in jobs from the Gorgon LNG project as the required approvals to commence operation have been obtained;
3) Petronas’ RM3bn worth transportation and installation O&G jobs;
4) ExxonMobil and Petrofac greenfield and brownfield jobs off the coast of Terengganu;
5) possibility of commencement of the Oil Capital pipeline, and
6) oil sands projects coming back in the limelight if oil price continues on an uptrend.
Yesterday, KNM announced that it has secured new orders totaling RM155m from international clients for overseas projects. In view of this, we expect a series of positive announcements from oil majors starting from now and moving towards 1H10.
