Stronger pipeline of work, contract awards and robust balance sheets have enabled sector players to capitalise on the industry upcycle
by MARK RAO/ pic by BERNAMA
LISTED oil and gas (O&G) service providers are boasting stronger financial results in the third quarter (3Q), helping several extend their share price gains to multi-year highs, while downstream players remain under stress of challenging market conditions.
The stronger pipelines of work and contract awards, as well as robust balance sheets have enabled sector players to capitalise on the industry upcycle.
The sustainability of the share price rally in the sector stocks is now contingent on resiliency in corporate earnings — many of which came in above market expectations in the latest quarter.
For the 3Q ended Sept 30, 2019 (3Q19), Petra Energy Bhd and Dayang Enterprise Holdings Bhd — among the companies leading the rally — registered improved fiscal showings on higher work activities and utilisation of assets.
Dayang Enterprise, whose shares are up 278% year-to-date (YTD), posted a 119.7% year-on-year (YoY) jump in net profit to RM107.09 million and a 26.8% increase in revenue to RM357.58 million.
The performance exceeded market expectations, positioning this financial year as a record year despite 4Q19 is expected to be seasonally weaker due to the monsoon season slowing down workflow, according to two local research firms.
Kenanga Investment Bank Bhd maintained an ‘Outperform’ call on the company with a higher target price (TP) of RM2.35, while Hong Leong Investment Bank Bhd has a ‘Buy’ call for the stock with a RM2.30 TP.
Dayang Enterprise’s shares hit a five-year high of RM2.12 last Thursday, but closed 14 sen lower at RM1.93 yesterday.
Petra Energy, which remained in the black in the first nine months of 2019, closed six sen lower at RM1.55 yesterday after hitting RM1.79 last week — its highest close since Dec 12, 2014. Shares in the service provider are up 278% YTD.
Carimin Petroleum Bhd, Velesto Energy Bhd and Perdana Petroleum Bhd are up 236.6%, 111.1% and 70.4% YTD respectively.
Neither Carimin Petroleum nor Velesto Energy have yet to announce their financial performance for the quarter, but Perdana Petroleum close to tripled its net profit to RM18.09 million in 3Q19 from the RM6.53 million posted in the corresponding quarter last year.
This was supported by a one-off gain and higher turnover achieved — up 42.8% YoY at RM87.41 million — on improved vessel utilisation.
The aforementioned companies are upstream support service providers who have benefitted from the higher work orders issued in 3Q ahead of the monsoon season and national O&G company Petroliam Nasional Bhd (Petronas) and its production sharing contractors ramping up spending.
The improvement in charter rates over the quarter has bolstered the performance of offshore support vessel service providers who have been struggling with oversupply and weak rates for years.
Bumi Armada Bhd posted a profit despite noting a drop in revenue, while Alam Maritim Resources Bhd broke eight consecutive quarters of losses by posting a net profit of RM535,000 in the 3Q.
Shares in both companies are up 206.2% and 56.2% YTD respectively. Yinson Holdings Bhd posted a 44.2% YoY drop in net profit to RM41.14 million for its quarter ended July 31, 2019, largely owing to the cessation of revenue contribution from a charter in Gabon, Central Africa, an impairment loss and unfavourable foreign exchange movements.
Elsewhere, Dialog Group Bhd — the integrated technical service provider across the O&G value chain — registered a 43.6% YoY jump in net profit for its latest quarter.
Profitability was bolstered by a non-cash fair value gain and higher share of profit from joint ventures and associates which helped offset the lower turnover managed for the quarter.
Serba Dinamik Holdings Bhd’s net profit rose 36% YoY to RM113.16 million in the 3Q supported by higher activities from its largest revenue contributor — the operation and maintenance division.
Its revenue improved 35.7% to RM1.04 billion. The company closed at RM4.30 yesterday, giving it a market capitalisation of RM6.32 billion — a significant gain when compared to its IPO of RM1.50 back in February 2017, when the company was valued at RM2 billion.
Integrated O&G solutions provider Handal Energy Bhd returned to black for its 1Q19, posting a net profit of RM1.41 million against a loss of RM4.42 million a year ago.
The change in fortunes was largely driven by the revenue contribution from a newly acquired asset as well as a disposal gain.
Coastal Contracts Bhd, meanwhile, posted a 38.3% YoY jump in net profit to RM23.65 million over the same period, on higher shipbuilding and ship repair revenue. Scomi Energy Services Bhd noted weaker earnings for the quarter due to lower turnover from drilling and marine services.
Hibiscus Petroleum Bhd, a O&G exploration and production player, registered an 83.8% YoY fall in net profit for its 1Q19, due to lower oil delivered at weaker prices and cost incurred from maintenance works on assets.
In contrast, downstream O&G players continue to face challenging market conditions and weaker margins.
Petronas Chemicals Group Bhd and Lotte Chemical Titan Holding Bhd noted YoY drops in net profit of 54% and 58% respectively in 3Q19, on adverse impacts from the challenging petrochemical industry which has been on a downturn since late last year.
Petronas Dagangan Bhd and Petronas Gas Bhd reported weaker profitability for the quarter due to higher costs incurred and lower turnovers. These four counters are trading in the red YTD.