MHB: Oil & Gas Sector Faces Headwinds Amid Mixed Prospects

The investment banking firm TA SECURITIES has revised its outlook for the Oil & Gas sector, downgrading it from Neutral to Underweight. This adjustment reflects a growing divergence in performance across various segments of the industry, indicating that a broad-based recovery is not anticipated. While certain areas show promising near-term catalysts, persistent weaknesses in others are expected to temper overall earnings momentum.

Performance Review and Key Challenges

The downgrade primarily stems from a persistent softness in Offshore Support Vessel (OSV) demand and significant downward revisions in Hook-Up and Commissioning (HUC) man-hours. HUC activity, in particular, materially underperformed in 2025, with actual man-hours falling approximately 70% below initial forecasts. Subsequent projections for HUC demand in 2026-2027 have also been significantly reduced, with further declines expected into 2028. Similarly, OSV demand is projected to follow a declining trend, with earlier forecasts for both production-support and drilling vessels seeing downward revisions for the 2026-2028 period. This points to sustained challenges in vessel utilization and overall activity levels.

Bright Spots and Future Catalysts

Despite the overall sector downgrade, specific segments present selective pockets of support and potential growth. Plant turnaround works are identified as the strongest near-term catalyst, with activity expected to peak in 2026. The latest PAO (PETRONAS Activity Outlook) 2026-2028 indicates 12 plant turnarounds for 2026, a material increase compared to 2025 and 2027, and an upward revision from earlier forecasts. This front-loaded workload is expected to benefit companies with direct exposure to these activities, such as Steel Hawk.

The outlook for fixed structures fabrication also shows an improved trajectory. While 2025 unit numbers were in line with projections, there’s a notable shift towards a higher proportion of Wellhead Platform (WHP) Medium structures in the 2026 mix. This revised fabrication outlook is positive for beneficiaries like MHB. Additionally, pipeline activity is set to see a step-up in volumes over 2026-2027, supported by sustained improvement in domestic oil and gas sales momentum, offering a potential re-rating catalyst for firms like PANTECH.

Investment Implications

TA SECURITIES believes that the current activity mix within the latest PAO offers limited upside to aggregate sector earnings. Recovery, where it occurs, is likely to be concentrated in narrow scopes rather than signaling a broader cyclical upturn. Investors are advised to focus on companies positioned to capitalize on the identified growth areas, while exercising caution regarding segments facing ongoing headwinds.