KUALA LUMPUR, July 22 — Kenanga Research is maintaining its 2022-2023 brent crude oil price assumption of US$100-US$110 per barrel, underpinned by the resurgence of China’s demand to drive global demand.

In a research note today, the brokerage firm added that the increased Russian sanctions, coupled with the Organisation of the Petroleum Exporting Countries and its allies’ capacity constraints may lead to insufficient oil supplies.

"Meanwhile, Petronas had revised its annual capital expenditure (capex) guidance upwards to RM60 billion from RM40 billion-RM50 billion previously — almost double year-on-year from RM30.5 billion in 2021 — in preparation for the resumption of activities.

"Petronas’ net-cash position is currently at a three-year high of RM90.6 billion, with dividend commitments remaining flat at RM25 billion despite the better earnings outlook, hence, we see little obstacles in Petronas meeting its own capex guidance,” it added.

Globally, offshore exploration and production capex is also expected to pick up in the coming years as an aftermath of under-investments over the past several years and may even surpass pre-Covid-19 levels.

"Given the largely lagged earnings effect of the locally listed oil and gas players (which is mostly dominated by local-centric equipment and service providers), we have yet to see any meaningful or sustainable rally within the sector, except for those with high earnings correlation to oil prices,” it said.

The brokerage firm said Bursa Malaysia’s Energy Index is still trading at a forward price-to-earnings ratio valuation close to its trough seen during the peak lockdowns in the first half of 2020.

"We believe this signals some selective laggard opportunities within the sector.

"As such, we maintain our ‘overweight’ call on the sector, with stock picks to include Petronas Chemicals as a prime beneficiary of the continued elevated oil prices, and Dayang Enterprise, a play on the recovery of local activity levels,” added Kenanga Research. — Bernama