Highlights

Petronas has approved the final investment decision (FID) for the development of the Pengerang Integrated Complex (PIC) in Johor.

RAPID is estimated to cost about US$16bn (or RM52.5bn) while the associated facilities will involve an investment of about US$11bn (or RM36.1bn). Total investment worth RM88.6bn vs. RM60bn reported previously.

Subsequent to Petronas’ decision, the partners’ respective FIDs will be announced in due course upon the approval of their respective board.

The project is poised for its refinery start-up by early 2019.

The PIC will consist of a 300,000 bpd refinery and a petrochemical complex with a combined capacity of producing 7.7 mtpa of various grades of products including differentiated and specialty chemicals products such as synthetic rubbers and high grade polymers.

Comments

We are very positive but not unexpected on the green light given on RAPID project by Petronas. As we mentioned in our report titled “Pengerang – The future catalyst” dated 12 July 13, PIC project is vital to address the country’s downstream solution.

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

With the PIC project, we 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.

Oil and Gas companies that are potentially leveraged to RAPID project are some onshore fabricators/process equipment providers (KNM, Muhibbah, Eversendai, MMHE, Pantech) and downstream players (Dialog, Petronas Chemical and Petronas Gas).

Rating

OVERWEIGHT

Positives: We believe that the ETP driven RM300bn Capex spending to enhance exploration, EOR and Marginal fields will continue and drive earnings in the sector.

Negatives: execution risk, delay in contract rollout and investors’ perceptions on previous disappointments.

Source: Hong Leong Investment Bank Research - 4 Apr 2014