Neutral on O&G ahead on growing uncertainties
KUALA LUMPUR: Analysts across the board kept their neutral stance unchanged after Petroliam Nasional Bhd’s (Petronas) results announcement for financial year 2018 (FY18) as the national oil and gasmaker continues its commitment of higher dividend; declaring dividends of RM54 billion, of which RM30 billion is a special dividend.
Researchers at Kenanga Investment Bank Bhd (Kenanga Research) said this brings Petronas’ total dividend declared for FY2018 to RM64 billion, significantly higher than RM19 billion in FY2017.
“We believe the increased dividend payout should not be overly burdening for the group, with its net-cash pile having jumped 64 per cent to RM105 billion from a year ago,” it said in a results review yesterday.
“This comes on the back of its improved cash flows during the year following the better financial results. Meanwhile, the group also guides 2019 capex of more than RM50 billion, higher than the RM46.8 billion capital expenditure (capex) spent in 2018.”
While capex over the last few years were mostly spent on the development of Pengerang Integrated Complex, Kenanga Research believed Petronas’s capex in 2019 will largely be targeted for the upstream segment and renewable energy.
“More specifically, the group guides that it would spend roughly RM30 billion capex for upstream activities in 2019, of which half of it will be spent domestically,” it opined.
“We believe these are signs that the group is comfortable with Brent crude prices stabilising at these levels, with the group having budgeted for an average Brent price of US$66 per barrel internally.”
With the upstream segment having been deprived of capex over the recent years from Petronas, the research firm believe Petronas’ higher capex stance moving forward may be for under-development green fields such as Kelidang, Limbayong fields, and recent discoveries such as the recent massive discovery in South Sumatra.
“We see potential beneficiaries of higher Petronas capex spend to include fabricators as well as FPSO players bidding for local contracts. However, we feel that cost optimisation would be a key concern, as we expect to see competitively low margins for upcoming job awards.”
AmInvestment Bank Bhd (AmInvestment Bank) saw that contract awards were still on an upward trajectory, with Malaysia’s 2018 contract awards rising 54 per cent year on year (y-o-y) to RM11.6 billion.
Meanwhile, offshore projects in Brazil, Mexico, the Middle East and West Africa may be still poised to gain traction with Sapura Energy Bhd and Malaysia Marine Heavy Engineering Bhd are being selected for Saudi Aramco’s Long Term Agreement programme, which allows them to bid for the kingdom’s massive offshore projects that could reach US$150 billion over the next 10 years.
“We are neutral on the sector given the volatility in oil price direction over the next 6 months, lingering balance sheet risks of Malaysian operators such as Bumi Armada, unresolved US-China trade dispute, deteriorating global economic growth outlook and easing of US pipeline constraints,” AmInvestment Bank said.
Likewise, Kenanga Research also stayed neutral on the sector’s outlook as with balance sheet resilience and earnings visibility still key selection criterion for the research firm.
“Overall, we believe Brent prices ranging between US$60 to US$70 per barrel to be “sensible”, with oil majors comfortable producing at these levels. In fact, we expect to see increased final investment decisions globally in the coming one or two years, spurred by massive new fields in the Middle-east and Africa.
“From here, we look towards OPEC’s next meeting in April for indications of continued output cut commitments.”