- Petroliam Nasional’s (Petronas) 1HFY13 net profit slid by 4% YoY to RM30bil due to lower crude prices, higher operating expenses and lower non-operating income. Revenue rose by 4% to RM151bil due to higher trading volumes for crude oil and sales gas coupled with higher petroleum products output. Petronas’ declared FY12 dividend decreased 10% YoY to RM27bil.

- The group’s 2QFY13 revenue slid by 3% QoQ to RM74bil due to lower realised prices for all major products and decreased volume for crude oil and liquefied natural gas. Together with higher operating expenses, this shaved 1H2013 net profit by 29% QoQ to RM12.5bil. (See Table 2).

- The group’s president/chief executive officer Tan Sri Shamsul Azhar Abbas was reported yesterday as saying that based on crude oil prices of US$100/barrel-US$110/barrel, Petronas should be able to achieve a FY13 pretax profit of RM91-92bil, a still decent 2%-3% YoY increase.

- Petronas’ 2Q2013 total daily output of crude oil and gas in Malaysia slid by 4% QoQ to 2.1mil barrels of oil, a slight blip on the increasing production trend from 4Q2011 to 1Q2013. The overall positive trend appears intact, as domestic crude oil production was up 12% on a YoY comparison.

- Petronas’ 2Q2013 capital expenditures rose by 11% to RM12bil, which caused 1H2012 capex to similarly rise 11% YoY to RM23bil. As noted in our past reports, this pace of spending is short of the expected average RM60bil annually for 2011-2015, if Petronas were to remain on track of its projected spending of RM300bil within the next 2 years.

- As such, we are uncertain if Petronas is able to achieve its targeted capex by 2015 at this stage. Tan Sri Shamsul was reported as saying that Petronas is in the process of reviewing some of its projects and this may lead to deferment of projects. Our own channel checks revealed that Petronas is behind schedule in some of its rig drilling programmes due to changes in project implementations.

- But given that Malaysia needs to ensure that domestic crude oil production output can be maintained at 500,000-600,000 barrels of oil per day, we remain convinced that Petronas will continue ramping up its capex cycle, even though some milestones might be temporarily missed.

- We note that the pace of work orders for the O&G industry in 2Q2013 had surged by 2.2x QoQ and 4.7x YoY to RM17bil (Chart 6). But in the short to medium term, excitement in the sector would still largely stem from the larger field projects in Malaysia such as the enhanced-oil recovery projects and gas cluster developments for the North Malay basin, as well as in Sabah and Sarawak which are tied to the completion of the Bintulu LNG complex expansion in 2015.

- We maintain our OVERWEIGHT call on the sector with our BUY calls being SapuraKencana Petroleum, Alam Maritim, Dialog Group, Bumi Armada and Petronas Gas.

Source: AmeSecurities