Malaysia Oil & Gas Sector Faces Tepid Outlook as Upstream Earnings Weaken

KUALA LUMPUR, Sept 19 – Malaysia’s oil and gas sector posted a second straight quarter without earnings outperformance, signaling that profits may have peaked in FY24, according to Kenanga Research. Upstream service providers such as Dayang and Wasco reported weaker-than-expected earnings in 2QFY25 due to declining work orders and vessel utilisation, while PChem continued to disappoint amid stiff Chinese competition and lower product prices.

Tepid Outlook for Oil and Gas

Kenanga noted that large-cap midstream players like Dialog, MISC, and PetDag delivered within expectations, underscoring their defensive appeal. The brokerage expects upstream earnings to remain weaker year-on-year through FY25 and possibly FY26, though service providers are still likely to remain profitable. Meanwhile, optimism is building in downstream petrochemicals, with signs of capacity rationalisation in Korea and China potentially sparking a recovery cycle in FY26. Kenanga recommends a two-pronged strategy: staying defensive in midstream stocks while selectively taking risks in downstream counters.

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Petronas’ FY26 capex remains uncertain due to unresolved gas aggregation profit-sharing with PETROS, weighing on East Malaysia’s upstream outlook. Kenanga suggests revisiting the sector in early 2026, when most negative earnings expectations may be priced in. A partial offset comes from potential dividend hikes by upstream service providers, supported by strong net cash positions.