Affin Hwang expects Petronas to roll out more O&G contracts

Oil and gas (O&G) contract flows are likely to increase to make up for Petroliam Nasional Bhd’s (Petronas) underspending in the first half of this year, said Affin Hwang Capital.

It said Petronas’ capital expenditure (capex) was RM16 billion in the first half of this year, or 32 per cent of its full-year target of RM50 billion.

“The guidance is still unchanged, showing its commitment to roll out more contracts in the coming months. Of the RM50 billion, Petronas has allocated half for domestic projects,” it said in a note.

“We believe activities will remain robust, with domestic upstream capex also guided to be higher at RM15 billion versus RM8 billion last year.”

Affin Hwang said the outlook was better for jack-up players, with jack-up rig demand in Malaysia steadily improving from 10 operational rigs in the first quarter to 13 to 14 rigs in the second and third quarters.

“This is in line with the 16 to 18 rigs requirement according to Petronas’ activity outlook.

“Daily charter rates in Southeast Asia for a jack-up rig with water depth of more than 105m is in the range of US$65,000 to US$95,000 (RM269,789 to RM394,307), compared with US$55,000 to US$65,000 in January,” said the firm.

It said maintenance, construction and modification players were likely to post strong profit for the third quarter as they benefited from higher maintenance activities in the peninsula and higher hook-up activities in Sabah and Sarawak.

In view of the recent sector runup and some stocks under its coverage nearing their fair values, Affin Hwang recommended that investors take profit on upcoming strong result announcements in the third quarter, as fourth and first quarters were seasonally weak due to the monsoon.

The firm has a “neutral” call on the sector.