O&G sector could be a dark horse in the making
KUCHING: The recent lyconcluded third quarter of 2016 (3Q16) results reporting season continued to be disappointing but analysts observed that the oil and gas (O&G) sector could be a dark horse in the making.
Kenanga Investment Bank Bhd’s research arm ( Kenanga Research) in its strategy report believed that the low expectations on most of the O&G stocks make the sector a perfect target for bottom fishing.
It noted that out of the 12 stocks that beat expectations, O&G as well as the plantation sectors contributed three stocks (or 25 per cent).
“We view this positively. Recall that we have labelled these two sectors as ‘Dark Horses’ as both crude oil and crude palm oil prices have been showing signs of improvement.
“More importantly, the low expectations on most of the O&G stocks make the sector a perfect target for bottom fishing. 3Q16 was a slightly better quarter for plantation sector, as fresh fruit bunches ( FFB) yield continued to improve quarter- on- quarter (q- o- q),” it said.
Meanwhile, on the performance of sectors during 3Q16, Kenanga Research said, “Approximately one third of the stocks in our coverage, or 44 stocks, out of a total of 128, delivered weakerthanexpected results.
“At the same time, 72 (or 56.3 per cent) and 12 (or 9.4 per cent) of them performed within and above expectations.
“Among the sectors under our
More importantly, the low expectations on most of the O&G stocks make the sector a perfect target for bottom fishing. Kenanga Research
coverage, we noticed that more stocks in O& G, construction, consumer, gaming, and media sectors delivered weaker-thanexpected results.
“However, as a whole, we deem construction and consumer F&B to be within expectations. For O&G sector, we saw further cut in the financial year 2016 (FY16) to FY17 earnings by 12 to 27 per cent, on average. This was largely due to slower-than- expected pick-up in the upstream activities.”
It pointed out that the media sector was hit by the prolonged weak advertising revenue as a result of economic uncertainties and poor consumer sentiment) as well as high OPEX.
At the same time, Kenanga Research said it is also somewhat disappointed with the performances of the power utility and glove sectors.
Overall, the research team maintained a ‘neutral’ view on the overall performance of major sectors in Malaysia.
It said, “The recently concluded results reporting season has reinforced our earlier view that a broad-based earnings growth story is still missing. As such we see no immediate re-rating catalyst emerging at this juncture despite market valuation seems undemanding.”