JPMorgan anticipates a challenging first quarter in 2025 for the broader ASEAN energy sector, projecting it will trail the MSCI ASEAN Index by up to 15%.
Over the past three months, the sector has also underperformed compared to domestic-focused and defensive utilities. This trend is expected to continue with potential earnings misses and downward revisions amid prevailing uncertainties in trade policy impacting pricing and margins.
However, JPMorgan suggests that 1Q25 earnings may play a lesser role in influencing stock prices. Investors’ attention might instead pivot towards updates on management’s strategic direction amid these uncertainties, as well as initiatives on capital management.
Within the sector, PTT remains a top pick, rated Overweight (OW) by JPMorgan. The resilience of PTT is linked to anticipated margin expansion due to reduced gas costs and ongoing share buyback programs.
Conversely, JPMorgan has downgraded PTTEP from Overweight to Underweight (UW), citing a downward trajectory for Brent crude prices, looming earnings cuts, and financial constraints limiting further buybacks or enhanced dividends owing to negative free cash flows.
Downstream energy stocks present significant value opportunities, trading at approximately 0.25-0.7 times price to book value. However, JPMorgan maintains a selective stance. Their Overweight ratings in this category include IVL and PTTGC. IVL benefits from significant exposure to the U.S. market and strategic deleveraging, while PTTGC is recognized for its restructuring efforts that are expected to drive a positive earnings turnaround.
Refining activities are viewed less favorably due to softening gross refining margins and high leverage ratios. TOP, rated Underweight, faces particular challenges with a demanding maintenance schedule adding to the complexity.
