O&G sector to see buoyant activity across value chain
12 March 2019
Source: The Star
Maybank IB says US$65 per barrel price level will spur spending
According to Maybank Investment Bank (MaybanklB), the sector is currently on a cyclical recovery and should continue to do well, citing Petroliam Nasional Bhd's (Petronas) recently released Activity Outlook 2019-21 report.
"We see buoyant O&G activity across the value chain in Malaysia, which is clearly laid out in Petronas' Activity Outlook 2019-21 report," MaybanklB said.
"Our crude oil average selling price (ASP) estimate of US$65 (RM266) per barrel is unchanged, a level that will continue to spur activities/spending worldwide," the brokerage wrote in its report yesterday.
Reiterating its "positive" stance on the O&G sector, MaybanklB said companies with lean balance sheets were expected to be able to better leverage on the upside of the industry.
Among the O&G players, its "buy" calls were on Dialog Group Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd, Sapura Energy Bhd, Velesto Energy Bhd and Yinson Holdings Bhd.
In releasing its Activity Outlook 2019-21 report last week, Petronas appeared more upbeat overall and was confident of delivering its commitment.
Among other things, the national oil company said it would spend slightly more than RMSObil on capital expenditure (capex) this year, up from RM47bil in 2018.
Of the total capex, the upstream segment would receive a higher allocation of RM30bil than downstream.
Petronas added that part of the capex would be used for the renewable energy space, in which it was currently in talks to acquire India's Amplus Energy Solutions.
AmBank Research noted Petronas' overall capex spending was rising further despite missing 2018 guidance, with the group's capex spending coming in 15% below Petronas president/CEO Tan Sri Wan Zulkiflee Wan Ariffin's earlier guidance of RM55bil.
"As he is now guiding for a capex of 'slightly above' RMSObil, we expect the group's capex spending to catch up as its activity outlook for 2019-2021 has indicated a more robust drilling programme," the research house said.
AmBank Research noted that jack-up rig usage had been revised upwards to 16 to 18 this year from seven to 10 that was forecasted by the group a year ago in its 2018-2020 outlook.
"Likewise, Petronas' 2019 projection for offshore installations has been raised from 6-7 to 8-9," it noted.
The brokerage remained "neutral" on the O&G sector, given the volatility in oil price direction over the next six months, lingering balance sheet risks of Malaysian operators such as Bumi Armada Bhd, unresolved US-China trade dispute, deteriorating global economic growth outlook and easing of US pipeline constraints.
AmBank Research's top picks were still companies with stable and recurring earnings such as Dialog, Serba Dinamik Holdings Bhd and Yinson.
"We like the recurring income business model of Dialog and Serba Dinamik, which are involved in operation and maintenance services.
"Dialog's earnings visibility is further secured by the Pengerang Deepwater Terminal project with its enlarged buffer zone, while Yinson may secure another major FPSO contract next year," the research house explained.
Petronas' profit after tax rose 22% to RM55.3bil for the financial year ended Dec 31, 2018, on the back of a 12% increase in revenue to RM251bil and supported by net write-back of impairment of assets.
This was partially offset by higher net product and production costs, depreciation and amortisation as well as tax expenses. Capital investments increased 5% to RM46.8bil in 2018.
Production increase 2% to 2,361 thousand barrels of oil equivalents per day mainly attributed to higher production from Iraq and Turkmenistan.
Petronas declared dividends of some RM54bil for 2018. This comprised a special tax exempt dividend of RM30bil declared in Nov 2018.