PETALING JAYA: Integrated oil and gas (O&G) companies that recently reported a mixed set of results for the financial year 2021 (FY21) will likely benefit from a potential increase in Petroliam Nasional Bhd’s (Petronas) capital expenditure (capex) spending this year.
Analysts generally maintained an “overweight” call on the O&G sector and projected that Petronas could boost its capex to RM40bil to RM50bil in FY22 from RM30.5bil in FY21 to take advantage of the soaring crude oil price, which rose above US$100 (RM420) per barrel recently.
The national O&G firm returned to the black with a profit after tax of RM48.6bil for FY21 from a net loss of RM21bil in FY20 due to better product prices.
According to RHB Research, O&G service providers should gradually benefit from a ramp-up in activities and increased domestic capex allocations.
On the O&G players’ performance for the fourth quarter of FY21, the research house said six companies under its coverage posted mixed results – with one above, two below and three in line with expectations.
“The disappointments were again, MISC Bhd and its subsidiary Malaysia Marine & Heavy Engineering Bhd (MMHE),” RHB Research in its latest report.
It cited that MMHE’s numbers have missed expectations for four consecutive quarters, on additional cost provisions and weaker project billings.
This also led to MISC’s dissapointing performance that was dragged by MMHE, it added.
However, Petronas Chemicals Group Bhd (PetChem) is the only player with a positive surprise, delivering a set of record earnings, thanks to stronger-than-expected margins amid better petrochemical prices.
“PetChem remains as our sector top pick due to its undemanding valuation and potential earnings upside amid rising oil prices,” said RHB Research.
TA Research, meanwhile, is “overweight” on the sector against the backdrop of the high oil prices.
“This is driven by our expectations of near to medium-term cyclical earnings recovery for O&G players,” it said in its latest report.
The catalyst is the higher capex spending from Petronas for brownfields in these areas, namely expansion projects, well drilling, production enhancement and platform and facilities maintenance, added TA Research.
As a result, demand will spike for offshore fleet and services.
“In turn, this would catalyse a rebound in daily charter rates (DCR), fleet utilisation and new contract awards,” said the research house.
Moreover, the expected increase in O&G production in the second half of 2021 will translate to higher demand for crude and liquified natural gas (LNG) transportation.
As such, this implies higher DCR for oil tankers and LNG carriers.
As for petrochemicals companies, TA Research expected that product average selling prices (ASP) will remain resilient after reaching multi-year record highs.
This is on the back of cost-push inflation given the expensive naphtha feedstock, it said. “Recall the latter trades in tandem with crude oil price,” it added.
Hong Leong Investment Bank Research (HLIB Research) also concurred that a higher Petronas’ capex spend over the next five years would the entire O&G value chain in Malaysia.
The research firm’s top picks are Dagang Nexchange Bhd with a target price of RM1.64, as the stock stands to be a direct beneficiary of the soaring oil prices from the Anasuria oil-producing assets and strong ASP growth from its unit, Silterra.
This is followed by Bumi Armada Bhd with a target price of 84 sen, given its foothold in the floating production storage and offloading business which provides steady recurring income, coupled with speedy enhancement in its debt profile.
Another top pick is Dialog Group Bhd with a target price of RM3.32 for its recurring income type of business model, said HLIB Research. “We deem it as one of the only listed secular growth stocks in the local O&G space.”