Petronas to increase prudence in spending

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) is seen increasing prudence in spending going forward amid mildly declining balance sheet, earnings, as well as increased dividend payment commitment, according to Kenanga Investment Bank.

It said this would lead to lower activity levels and would be impactful to local-centric contractors which derived most of its earnings in Malaysia such as Dayang Enterprise Holdings Bhd, Uzma Bhd and Velesto Energy Bhd.

“Nonetheless, we also acknowledge that fundamentals for the global oil market are still weak, and internationally exposed players are expected to see overall weaker activities for the time being,” it said.

Petronas posted a net loss of Rm3.4bil for the third quarter ended Sept 30, compared with a net profit of Rm7.4bil in the same quarter last year, due to lower earnings before interest, taxes, depreciation, and amortisation.

Higher impairment loss on assets and higher tax expenses attributed to the derecognition of deferred tax assets, primarily as a result of lower oil and gas prices outlook, also affected its financial performance.

The group recorded revenue of Rm41.1bil, down 25% from Rm55.1bil in the corresponding quarter last year, mainly due to lower average realised prices for major products.

Kenanga noted that Petronas’ net cash position had shrunk 17% quarter-on-quarter to Rm61bil in the third quarter of 2020.

Year-to-date, the group’s net cash position has contracted a total of 25% since end-2019 financial year.

It said Petronas had already fully-paid ordinary dividends of Rm24bil, and Rm2bil of the Rm10bil special dividend. The remainder Rm8bil is expected to be paid in the fourth quarter of 2020.

This marks the second consecutive year that Petronas was asked to pay special dividends.

Last year, Petronas had paid a special dividend of Rm30bil in the 2019 financial year, raising that year’s dividends to Rm54bil.

“We believe that continued commitment to higher dividends may hamper the recovery of the sector locally, especially considering the global trend of lowering dividends among other international oil majors,” it said.

Kenanga is maintaining a “neutral” call because the pace of recovery is expected to slow and gradual as the fundamentals of the sector are still weak.

“As such, we do not expect to see activity levels returning to 2019-level at least until 2023,” it said.