Highlights

Flat O&G Production… Malaysia’s O&G production peaked in FY05 with 1.61m BOE/day in FY11.

Huge Capex to boost production… Petronas will invest RM300bn in capex over the next 5 years or RM60bn/year to boost production.

Importing what we exported… Despite being the 29th largest crude oil producer in the world, we export and import almost the same amount of refined petroleum products.

Downstream adds value… It makes sense for the country to refine its own crude oil and produce higher value-added petrochemical products to better manage our O&G resources, especially with the expected increase in production from the various upstream initiatives.

Solution in PIPC… Hence, the Pengerang Integrated Petroleum Complex (PIPC) was one of the key projects established to address the country’s downstream solution. The total investment for PIPC is estimated to be approximately RM120bn.

Petronas makes the first move… Petronas’ proposed RM60bn RAPID, upon commissioning in early 2017, will see the country’s total refining capacity increase to 935,300 bpd from the current 635,000 bpd while petrochemical related products are expected to increase from 2.6m tonnes/year to 6.5m tonnes/year.

Taiwan investors are next… Kuo Kuang Petrochemical Technology Company Ltd is the next investor in PIPC with an estimated value of RM27bn. The project will commence in 2014 with target production in 2018.

Construction first wave of beneficiary… The first wave of beneficiaries will be the construction players given the massive infrastructure and construction works needed to kick-start the project. This will be followed by jobs for the supporting facilities of the petrochemical complexes. The next phase of work scope will be the structural steel portion to the process equipment and instrumentation works of the petrochemical complexes itself. We believe that there are some RM15.2bn worth of projects up for grabs.

Future downstream beneficiaries… Long term beneficiaries of PIPC towards completion are Dialog, Petronas Chemicals and Petronas Gas.

Rating/ Valuation

OVERWEIGHT

We are favourable on the PIPC project which poses investment merits that allow our country to better capitalise on our O&G resources. With the continuous pipeline of construction and O&G-related projects, it reinforces our OVERWEIGHT view on both O&G and Construction sectors.

Top Picks

• Perisai (BUY; TP: RM2.00)
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• IJM (BUY; TP: RM6.33)
• Mudajaya (BUY; TP: RM3.53)

Source: Hong Leong Investment Bank Research- 12 Jul 2013