Malaysia O&G
Approval of final investment decision for Pengerang projects projects

Petroliam Nasional Bhd (Petronas) announced yesterday its board had approved the final investment decision (FID) for the development of the Pengerang Integrated Complex (PIC), which includes the Refinery and Petrochemical Integrated Development (Rapid) and other associated facilities’ development. Rapid is estimated to cost about US$16bn, while the associated facilities will involve another US$11bn in investments. The project will start up a year later than expected in 2019, likely due to the unresolved issues with the local community involving the relocation of houses, farms and cemeteries.

To recap, PIC will be developed within a 2,526 ha site, housing a 300,000 barrels/day refinery and a petrochemical complex with a combined capacity of 7.7m MT/year of various petrochemical products. Meanwhile, associated facilities include a raw water supply facility, power co-generation plant, LNG re-gasification terminal as well as other ancillary facilities.

We expect various engineering, procurement and construction (EPC) contracts to be awarded soon after the approval of FID. Some of the key beneficiaries are Petronas Chemicals (Hold, TP RM6.15), Muhibbah (Buy, TP RM3.20), Dialog (Hold, TP RM2.90) and Petronas Gas (Buy, TP RM28.60).

Petronas Chemicals is likely to be heavily involved Petronas Chemicals with the operation of Rapid given its role as the petrochemical arm of Petronas Group. There is no direct involvement by Petronas Chemicals at this juncture but we believe that it will take over the petrochemical plants upon commissioning by 2019.

We understand Muhibbah Muhibbah Muhibbah has submitted tenders for the majority of packages which has opened for RAPID together with its two foreign JV partners. We expect contract sizes to be chunky and Muhibbah’s portion of the contracts to be worth at least RM1-2bn. We continue to like Muhibbah as a growing oil and gas proxy in Malaysia where it is set to capitalise on its much sought after Petronas fabrication license.   Dialog is set to benefit tremendously from the PIC Dialog given its deepwater independent terminal which will eventually have 5m cubic meter of storage capacity, supporting the downstream O&G hub in Pengerang. Also,

Dialog is likely to pursue the first independent LNG trading terminal in Asia with its long-time partner, Royal Vopak to provide LNG storage, loading and regasification facilities. We still like Dialog for its long-term recurring income from the tank terminal business and upstream projects, but upside is limited and valuation is demanding at 35x FY15 PE currently.

Petronas Gas is likely to secure a new regas plant Petronas Gas to cater to the Rapid development under Petronas due to its involvement in the Melaka regas plant and the Pengerang plant would be connected to its PGU network. We believe the size of the new Pengerang regas plant could be similar to Petgas’ first regas plant in Melaka with capacity of 500-550mmscfd, and initial estimated enhancement of c.10% to FY19F net earnings. Maintain BUY call for Petgas for its promising outlook and upside from new regas and power plants.

Source: HwangDBS Research - 4 Apr 2014