However, it is too early to say if a sustainable recovery of the sector is on the cards

By SHAZNI ONG / Pic By ARIF KARTONO

ACTIVE trading in oil and gas (O&G) and property and infrastructure-related stocks on the back of strong energy prices and the prospects of a restart of mega-projects like the high-speed rail (HSR), helped set a fresh record in volume traded on the exchange yesterday.

A total of 11.2 billion units of securities worth RM4.4 billion were traded yesterday with retail investors active buying into O&G related counters as prospects of project launches and improving oil demand saw crude oil prices push higher with the Brent crude oil futures contract up US$1.80 (RM7.87) at US$34.31 a barrel (bbl) and West Texas Intermediate (WTI) futures contract up US$2.21 at US$31.64 (at press time).

BIMB Securities Sdn Bhd analyst Azim Faris Ab Rahim said it is too early to say if a sustainable recovery of the sector is on the cards.

“We still maintain our average Brent crude oil forecast for 2020 at US$30/bbl, which we think will cause the oil producer to remain cautious throughout the year.

“We think this rally in O&G stocks is justified as it lagged behind the bear-market rally in other sectors,” he told The Malaysian Reserve (TMR) yesterday.

Icon Offshore Bhd was the most actively traded at 691 million shares traded and the stock price rose five sen or 66.7% to 12.5 sen while Velesto Energy Bhd rose three sen or 21% to 17 sen. Bumi Armada Bhd (up 33%), KNM Group Bhd (up 33%), Hibiscus Petroleum Bhd (up 6%) and Sapura Energy Bhd (up 11%) were the big-ticket sector stocks which were heavily traded.

Azim Faris noted that investors need to be cautious of any signs of weakness in the oil market that could dent investor sentiment for the sector stocks which started to release their first quarter (1Q20) results last week.

“Based on the result of Icon Offshore and Petra Energy Bhd last week, we think there is a real concern of oil producers delaying activities and therefore affecting the earnings of O&G service companies for the rest of the year,” Azim Faris said.

“Our top pick is Yinson Holdings Bhd who has long term earnings visibility on fixed floating production storage and offloading charter with strong credit-rating clients. It may also ride on Petrobras’ future offshore projects for its future earnings growth

“Also, Lotte Chemical Titan Holding Bhd who is the beneficiary of lower oil price,” Azim Faris said, adding the firm has a ‘Neutral’ call on the O&G sector in the near term.

Affin Hwang Investment Bank Bhd analyst Tan Jianyuan said the current oil price movement is in line with what the firm has expected.

“Our 2020 Brent crude oil price assumption is for it to trade in the range of US$30-US$35/bbl. Amid China opening up cities and buying more for their refineries, near-term global demand will likely recover.

“However, we caution that US shale might potentially affect the oil market recovery down the road if the global oil price recovers to a certain level,” he told TMR.

Tan noted that the firm is still ‘Underweight’ on the sector, cautioning weak demand will continue to take a toll on global oil prices this year.

“1Q is generally weak for some O&G companies due to the seasonal monsoon factor. Our top pick is only for Dialog Group Bhd because Petroliam Nasional Bhd’s capital expenditure cut will not affect them. And it’s a beneficiary of current higher storage demand and increasing storage rates,” he added.

OCBC Bank global treasury research and strategy economist Howie Lee said WTI and Brent crude oil have respectively posted 138% and 42% gains since their lows on April 28 — barely three weeks ago.

“Although most of the price increase has taken place in the front month, prices across the 12-month forward curve have also risen, suggesting the demand pickup is gathering pace,” he stated.

The one million-six million contangos on Brent crude oil is US$2.61/bbl last Friday — the tightest since March 6, which was before the dramatic oil collapse on that same weekend.

Adding fuel to the rally was last week’s industrial data from China, which showed crude oil throughput in the country returning to positive year-on-year levels after a contraction in March, he said in a weekly commodity outlook note yesterday.

Lee noted that there are some signs, however, the rally in crude oil has been too fast, too furious, and a correction might be imminent after the heady gains from the past three weeks.

“Firstly, we maintain our view that given the compression in contango to such flat levels, there is now almost negligible incentives to conduct carry trade namely the buy-and-store strategy. Secondly, crack spreads have failed to keep up with the mercurial rise in crude oil prices, largely falling last week.

“Thirdly, for the first time in 12 weeks, refinery rates in Shandong fell. Fourth, WTI for June delivery is due to expire today, which might prompt some risk aversion following bad memories from last month.

Beyond the near term, we think crude oil is set to continue rallying, with Brent crude oil possibly headed for US$40/bbl before the year ends — but in the coming week or two, we see some selling pressure forming,” he said.

The report of the HSR project sent stocks like Malaysian Resources Corp Bhd (MRCB), Iskandar Waterfront City Bhd (IWC) and Ekovest Bhd higher.

IWC rose 19 sen or 38.4% to 68.5 sen, Ekovest rose 11.5 sen or 23.23% to 61 sen and MRCB ended 8.5 sen or 17.9% up at 56 sen with heavy volume.