DBS Weigao said that China has signed a variety of long-term gas supply agreements with its neighbors to address energy demand in response to a large amount of potential demand triggered by differences in gas pricing in China. However, the infrastructure is still largely insufficient to support growing natural gas imports, and DBS estimates that the existing pipeline projects it tracks are expected to generate 7 million-8 million tons of steel pipe demand (about 21000 km).

DBS Weigoda believes that investors have sold too much on oil and gas pipeline stocks; although the recovery is weak, the industry outlook is undoubtedly improving; even so, valuations are still near historic lows, so they believe that the downside risk of oil and gas pipeline stocks is limited. Once orders return to normal, stocks have strong upside potential.

The bank's preferred stock is Pearl River Steel Pipe (1938.HK) because of its strong earnings growth and high performance visibility, pointing out that its price-to-earnings ratio for fiscal 2013 is now equivalent to 4 times, while the average price-to-earnings ratio for the sector is 8 times. DBS has set a target price of HK $3.60 for the stock.

Pearl River steel pipe fell 4.0 per cent to HK $2.15 on Thursday.