Petronas is on firmer footing — Maybank IB Research

KUCHING: Petroliam Nasional Bhd ( Petronas) is on a firmer footing to ride through the cyclical downturn as the oil company is in synch with the performance of oil companies worldwide, observed analysts of Maybank Investment Bank Bhd’s research arm ( Maybank IB Research).

It highlighted that Petronas’ first nine months of 2016 ( 9M16) performance and outlook are in sync with that of oil companies worldwide in terms of lower earnings, tighter cost and operating expenditure (opex) controls, capital expenditure (capex) and dividends management drive.

It explained, Petronas spent a lower capex of RM11 billion in the third quarter of 2016 ( 3Q16), mainly on the group’s refinery and petrochemical integrated development project ( RAPID) project (48 per cent completed versus 36 per cent in 2Q16; expected start- up: 1Q19).

“This took its 9M16 spending to RM36 billion,” the research arm said.

Maybank IB Research noted that Petronas’ free cash flow (FCF) was marginally negative in 3Q16 (down RM274 million) but positive in 9M16 ( RM194 million), reflecting the group’s target to manage growth and costs.

It further noted that cost-wise, Petronas achieved a RM3 billion reduction on controllable costs, which is operating expenditure (opex), to RM31 billion while the group’s CORAL 2.0 initiative yielded RM2 billion in cost savings (through cost- optimisation, improved efficiencies).

On dividends commitment, Maybank IB Research highlighted that RM12 billion in dividends has been paid, with the remainder ( RM4 billion) by year- end.

“Petronas has committed to pay RM13 billion for 2017,” the research arm said. “Talks of Saudi Aramco potentially taking a 50 per cent stake in Petronas’ RAPID project would be a major positive, if it materialises.”

It added that for Petronas, this mean the ability to realise value from the group’s RAPID investment, the new capital can be deployed for other capex programmes (upstream exploration and production ( E& P)) and a firmer commitment to pay dividends to the government.