High oil prices are here to stay. Who are the beneficiaries?

Kim Eng has published an article discussing the current state of the oil and gas industry, highlighting a unique juncture.

The Energy Information Administration (EIA) forecasts record-high oil demand in 2024-25, which is expected to support prices. Simultaneously, there is a record level of spending on decarbonization efforts.

Jeremie Yap, cited in the article, notes that nearly a fifth of Petronas’ 2023 capital expenditure (capex) was directed toward decarbonization initiatives. The combination of high oil prices and increased spending on low-carbon technologies is expected to benefit the oil and gas services sector.

In Malaysia, companies like Yinson and Velesto are identified as potential top performers. Yinson is expected to achieve record earnings for FY25-26, while Velesto is experiencing growth driven by contract extensions and high charter rates.

The article also discusses Jarick Seet’s initiation on Marco Polo Marine, which is experiencing increased demand and charter rates from both the oil and gas and renewables sectors. Seet, viewing it as a high-conviction, Opportunity+ stock, anticipates a significant earnings boost as a new vessel servicing offshore wind farms comes online next year. Despite charter rates rising by 5-15% annually over the past 3-4 years, Marco Polo Marine’s stock is trading at a low valuation of 6.9x PE compared to regional peers trading at 15-25x. Seet has a BUY recommendation on the stock, projecting a 54% upside potential.

Last week, UOBKayhian issued a buy recommendation on Marco Polo, as reported here.