Malaysia's Maybank has upgraded its views on most of the country’s offshore players in what it described as a “contrarian call”.
Offshore analyst Liaw Thong Jung said the steep correction in share prices after the Opec+ alliance breakup last month had made oil and gas stocks “attractive again”, from a valuation and sentiment perspectives.
“While the market remains volatile, it has priced in the demand, supply and price shock. Risk-reward opportunity has improved, and the stocks are worthy of a trade,” he said in a note to investors.
“We tactically upgrade most of our recommendations to ‘buys’, a contrarian call ahead of any positive resolutions. A renewed alliance to cut output is a catalyst.”
Although it is “almost impossible” to time a bottom of the oil cycle and an eventual recovery, it is sensible to take a “longer-term view” and think “beyond the crisis”.
“We foresee such a scenario playing out eventually whereby supply is curtailed, the price war ends, and demand returns to normalcy,” Liaw said.
“The current low oil price is unsustainable in the long run and consumption for oil will recover once the Covid-19 pandemic flatlines.”
Kuala Lumpur-based Liaw said most of the negatives had been priced in to the majority of Malaysia’s offshore-related equities.
“Values and opportunities are emerging post our sector downgrade to negative and stock recommendations to ‘sell’ in March 2020,” he said.
“The sector is worth a trade ahead of a fundamental recovery following the recent oversold collapse in share prices across the value chain.
“We have tactically upgraded the sector to positive from a trading perspective. Alam Maritim, Icon Offshore and Malaysia Marine and Heavy Engineering (MMHE) are now ‘buys’ from ‘sell’ previously. Yinson remains a ‘buy’, while we reiterate a ‘sell’ on Bumi Armada.”
