Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Oil and gas
Maintain overweight
Last Friday, Bernama reported that there is no change in Petroliam Nasional Bhd's (Petronas) licensing policy related to companies engaged in Malaysia's upstream oil and gas (O&G) industry. The report said that under the Petroleum Regulation 1974, both local and foreign companies wishing to commence or even carry out any business or services related to Malaysia's O&G upstream operations must apply for a licence from Petronas.
The clarification was made following The Edge report last week that such a licence may not be required going forward in bidding for local O&G jobs.
First, we note that Petronas has embarked on a long-term plan to nurture the local O&G service providers, with the first few being Kencana Petroleum Bhd, SapuraCrest Petroleum Bhd and Dialog Group Bhd, which have been awarded marginal oilfields to expose these companies to upstream O&G activities.
Second, we understand that most of the local O&G service providers currently have spare capacity as O&G activities have slowed compared with before the global economic recession in 2008 when their capacity was mostly tailored to local needs.
Noting this spare capacity, it may not make economic sense for Petronas to get resources from the non-local O&G services providers whose capacity is mostly built to meet the requirements of their own countries or regions of operation.
Finally, this licensing requirement does not prevent foreign companies from participating in Malaysia's O&G sector as what is required is a partnership with a local licence holder. In fact, such participation facilitates the transfer of technology and helps enhance the competence of the local companies while at the same time allowing the foreign companies to benefit from the development of the country's resources.
Our top picks are Kencana ('buy', fair value (FV): RM3.17) and Dialog ('buy', FV: RM3.66). With an improving global economic outlook and the crude oil price having gone back to around US$90 (RM277)/barrel, we believe that O&G activities will gradually pick up, which would then benefit all O&G service providers through better utilisation rates and higher sales/unit or services/hour rates.
On the local front, we expect the industry to be in for more marginal oilfield developments and the increasing need for brownfield services to boost O&G production while waiting for the commencement of deepwater activities on a large scale after pre-development preparations are completed.
We gather that the ratio between shallow water and deepwater O&G production is still at 70:30 but over time, the deepwater portion will pick up after all the easy O&G finds deplete.
Hence, we think Petronas is now preparing the local O&G supporting services providers for marginal oilfield (shallow water) developments first before embarking into the more challenging terrain (deepwater). ' OSK Research, Oct 31
This article appeared in The Edge Financial Daily, November 1, 2011.
Company Name: DIALOG GROUP BHD
| Research House: OSK | Price Call: BUY | Target Price: 3.66 |
Oil and gas
Maintain overweight
Last Friday, Bernama reported that there is no change in Petroliam Nasional Bhd's (Petronas) licensing policy related to companies engaged in Malaysia's upstream oil and gas (O&G) industry. The report said that under the Petroleum Regulation 1974, both local and foreign companies wishing to commence or even carry out any business or services related to Malaysia's O&G upstream operations must apply for a licence from Petronas.
The clarification was made following The Edge report last week that such a licence may not be required going forward in bidding for local O&G jobs.
First, we note that Petronas has embarked on a long-term plan to nurture the local O&G service providers, with the first few being Kencana Petroleum Bhd, SapuraCrest Petroleum Bhd and Dialog Group Bhd, which have been awarded marginal oilfields to expose these companies to upstream O&G activities.
Second, we understand that most of the local O&G service providers currently have spare capacity as O&G activities have slowed compared with before the global economic recession in 2008 when their capacity was mostly tailored to local needs.
Noting this spare capacity, it may not make economic sense for Petronas to get resources from the non-local O&G services providers whose capacity is mostly built to meet the requirements of their own countries or regions of operation.
Finally, this licensing requirement does not prevent foreign companies from participating in Malaysia's O&G sector as what is required is a partnership with a local licence holder. In fact, such participation facilitates the transfer of technology and helps enhance the competence of the local companies while at the same time allowing the foreign companies to benefit from the development of the country's resources.
Our top picks are Kencana ('buy', fair value (FV): RM3.17) and Dialog ('buy', FV: RM3.66). With an improving global economic outlook and the crude oil price having gone back to around US$90 (RM277)/barrel, we believe that O&G activities will gradually pick up, which would then benefit all O&G service providers through better utilisation rates and higher sales/unit or services/hour rates.
On the local front, we expect the industry to be in for more marginal oilfield developments and the increasing need for brownfield services to boost O&G production while waiting for the commencement of deepwater activities on a large scale after pre-development preparations are completed.
We gather that the ratio between shallow water and deepwater O&G production is still at 70:30 but over time, the deepwater portion will pick up after all the easy O&G finds deplete.
Hence, we think Petronas is now preparing the local O&G supporting services providers for marginal oilfield (shallow water) developments first before embarking into the more challenging terrain (deepwater). ' OSK Research, Oct 31
This article appeared in The Edge Financial Daily, November 1, 2011.
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