KUALA LUMPUR: Oil and gas earnings are projected to increase by 3.0 per cent to 5.0 per cent quarter-on-quarter (QoQ) in the third quarter of 2024 (Q3 2024), driven by stronger performance from companies in the sector in recent months, especially MISC Bhd.
CIMB Securities said the moderate earnings growth forecast in Q3 2024 is mainly due to high base effect from Malaysia Marine and Heavy Engineering Holdings Bhd's (MMHE) elevated Q2 2024 earnings due to cost recovery claims.
"We have not factored in any cost reversals for Q3 2024-Q4 2024 due to the lack of clear guidance from management," it said in a note.
The firm said that the sector delivered mixed results for the recently concluded financial period for Q2 2024.
Excluding Yinson Holdings Bhd, it said earnings per share (EPS) for companies under its coverage grew by 2.1 times year-on-year (YoY), driven by MMHE's significant earnings turnaround, as well as notable improvements at Bumi Armada Bhd, Dayang Enterprise Holdings Bhd, and Dialog Group Bhd.
"QoQ, sector core EPS fell 6.2 per cent, attributed to larger losses from Lotte Chemical Titan (LCT) Holdings Bhd and decline at MISC (lower contribution from LNG and offshore segment)."
It added core earnings for the downstream segment continued to face challenges as Petronas Chemicals Group Bhd (PetChem_ and LCT grappled with margin compression driven by elevated operating costs amid market volatility and limited upside in average selling prices (ASPs).
Following the weaker-than-expected Q2 2024 results and a bleak earnings outlook for 2H24, the firm cut its earnings forecast for PetChem by 5.2 per cent, 9.6 per cent and 7.4 per cent for financial year 2024 (FY24), FY25, and FY26 and widened FY24 to FY26 core net loss projections for LCT by 10.2 per cent, 7.5 per cent and 10.5 per cent respectively.
"We expect 2H24 earnings to deteriorate further due to lower ASPs from increased availability. of olefins and derivatives (O&D) products as regional plant shutdowns end.
"For PetChem, earnings for the fertilisers & methanol (F&M) segment are also likely to face headwinds as China lifts its export restrictions on urea.
"Additionally, we expect a series of scheduled plant turnarounds in the 2H24F to impact PetChem's overall plant utilisation rates, thereby reducing production and sales volumes."
It maintained a "Neutral" rating on the sector given the mixed earnings outlook.