Navigating Volatility: Strategic Outlook for Basic Materials
Kenanga IB's Prudent Counsel on Upstream Investments
Kenanga IB expresses a cautious stance regarding Malaysia's upstream service providers. Despite current appealing valuations and certain short-term catalysts, the firm highlights the ongoing uncertainty surrounding Petronas' capital and operating expenditures. This ambiguity prompts a more reserved approach to investments in this segment of the industry.
Shifting Capital and Regional Focus in Energy Sector
A significant point of consideration is the potential redirection of capital expenditure. According to analyst Lim Sin Kiat, unless the dispute over gas supply rights between Petronas and the Sarawak state government is resolved, a shift in investment focus towards Peninsular Malaysia and Sabah is likely. This geographical re-prioritization could have substantial implications for regional development within the energy sector.
Resilience in Midstream and Downstream: A Preferred Investment
In contrast to the upstream segment, Kenanga IB demonstrates a preference for midstream and downstream players. These sectors are seen as possessing greater resilience in the current market climate, with an anticipated recovery in the petrochemical industry projected for 2026. This outlook underscores a strategic pivot towards more stable and potentially lucrative areas within the basic materials value chain.
Sector Rating and Top Pick Adjustment for Malaysia's Oil and Gas
The firm maintains a neutral rating on Malaysia's overall oil and gas sector. However, a notable adjustment in its top pick has been made, with Petronas Chemicals now replacing Dialog. This change reflects expectations of enhanced earnings upside potential for Petronas Chemicals in 2026, signifying a refined investment strategy aligned with future growth prospects.