KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research has maintained its "overweight" rating on the oil and gas sector with unchanged average Brent oil price forecasts at US$85 per barrel for 2024 and 2025.

The research house said that post-monsoon, local offshore activities will run at full throttle and lift topside maintenance contractors and offshore support vessel fleet owners in the coming quarters.

"After the monsoon season, we expect offshore activities to increase significantly, benefiting maintenance contractors and offshore vessel (OSV) fleet owners," it said in a note today.

Topside maintenance and hook-up and commissioning (HUC) contractors, as well as OSV fleet owners, are slated to clinch superior profits with robust year-over-year growth in 2Q24 and 3Q24. 

HLIB said the award of Pan Malaysia MCM-HUC packages, the production operations vessel tender, and Project Safina 2 are key rerating catalysts.

"With oil prices staying above US$80/bbl, we expect drilling and FPSO (floating production storage and offloading) markets to remain tight in view of rising E&P (exploration and production) activities around the globe.

"Our top picks for the sector are Dialog Group Bhd ('buy'; target price: RM3.00), Bumi Armada Bhd ('buy'; TP: 78 sen) and Velesto Energy Bhd ('buy'; TP: 35 sen)," HLIB added.

The research house also said the demand for polyethylene (PE) and polypropylene (PP) in China and Southeast Asia is expected to remain weak. 

This is due to continued low demand in downstream markets like home appliances and automotive, as well as in industrial uses such as chemical containers and pipes, it added. 

China's decreasing imports, driven by growing self-sufficiency, mean there are no clear catalysts for recovery in this sector at present, said HLIB.