Lead Story: After an impressive rally, have O&G stocks run ahead of fundamentals?

OIL and gas (O&G) counters have been the surprise winners so far this year on Bursa Malaysia as a steady recovery in crude oil prices, which have stabilised at about US$60 per barrel, helped prop up investor sentiment on the sector.

Year to date, gains in O&G stocks have been led by KNM Group Bhd, which has seen more than 460% added to its market value as at last Wednesday. This is followed by Petra Energy Bhd, with a 305.8% increase in market capitalisation, Dayang Enterprise Holdings Bhd (+261%) and Velesto Energy Bhd, whose share price has doubled.

While optimism in the sector is justifiable with the stabilising crude oil prices and projections of increased investments by O&G majors around the world, some of these companies are still loss-making.

Velesto posted a net loss of RM10.3 million in the first half of its financial year ending Dec 31, 2019 (1HFY2019), though this is lower than the RM19.07 million net loss recorded a year ago.

Perdana Petroleum Bhd, whose share price has surged more than 80% so far this year, saw a net loss of RM38.4 million in 1HFY2019. This, too, was an improvement on the RM56.6 million net loss in 1HFY2018.

The share price rally was fuelled by the markets optimism on the pace of recovery in offshore activities in the O&G sector, Azim Faris Ab Rahim, an O&G analyst with BIMB Research, tells The Edge. The rally in Velestos share price was due to expectations of a recovery in charter rates for jack-up rigs and an improvement in utili....

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