Small-cap O&G stocks catch up with big peers

By HANIM ADNAN

PETALING JAYA: Small-cap oil and gas (O&G) stocks are catching up after lagging behind their big-cap peers during the recent market run-up. 

Analysts are overweight on the O&G sector, seeing 2007 and 2008 as “good years”, given the domestic offshore activities shifting into development and production mode driven by foreign production sharing contracts (PSCs). 

Emphasis will be on deepwater development offshore Sabah, gas production for liquefied natural gas exports offshore Sarawak and the development of the Malaysia-Thailand Joint Development Area and PM-3 Commercial Arrangement Area offshore Peninsular Malaysia with an announced capital expenditure exceeding RM15bil over the next few years. 

OSK Research, in its note dated May 11, expanded its coverage of small-cap O&G and initiated “buy” calls on Favelle Favco Bhd, Eastern Pacific Industrial Corp Bhd (EPIC), Coastal Contracts Bhd and Alam Maritim Resources Bhd. 

The brokerage said investor confidence appeared to have returned to EPIC, which had seen its share price gaining 37% over the past six months.  

EPIC is planning for another fabrication yard to meet increasing demand from PSCs and service providers. 

OSK Research has raised EPIC's target price to RM3, given its imminent strong earnings. Yesterday, the counter closed at RM2.25, down one sen from RM2.26 on Tuesday.  

The brokerage has a “neutral” call on Kencana Petroleum Bhd on margin concerns. It said: “We await greater visibility on its earnings, given that the company has only recently gone public”. 

Shares in Kencana rose 4 sen to RM1.93 yesterday on volume of 14.93 million shares.

Meanwhile, analysts also believe that customised heavy-duty crane maker Favelle deserves some attention.  

The company is one of the main subsidiaries of Muhibah Engineering Bhd, which was one of Bursa Malaysia's top gainers yesterday.  

Despite being a small player, Favelle is in a prime position to capitalise on the prevailing O&G boom in Malaysia and worldwide. 

An analyst said Favelle had an order book exceeding RM400mil, of which 80% was for offshore pedestal cranes. 

The company has a global appeal, with more than 80% of its revenue derived from overseas sales.  

Favelle shares closed two sen down to RM1.20 yesterday.