Petronas  posted  net  losses  in  4Q14  due  to  significant  assets  impairment losses recognised as a result of reduced crude oil price forecasts as well as lower  revenue  generated  for  the  quarter.  Petronas  said  the  impairments totalled RM22.6bn. For 2014, Petronas posted lower net profit of RM47.6bn, down 27% from RM65.6bn in 2013, primarily due to the significantly higher assets  impairment  losses  recognised  and  higher  net  depreciation  and amortisation  expenses in  2014.  EBITDA for  the  year  was  RM125.3bn,  an increase by RM1.9bn compared to 2013.

Petronas confirmed that it has already made plans to cut its initial five-year capex  (2015  to  2019)  by  10%  this  year  and  another  15%  next  year.  Its outgoing president and CEO Tan Sri Shamsul Azhar Abbas also reiterated that  Petronas  will  not  be  granting  any  new  risk  service  contracts  to contractors  until  crude  oil  prices  reach  US$80/bbl.  Meanwhile,  Shamsul assured  that  the  RAPID  project  in  Pengerang  will  proceed  as  scheduled. Elsewhere,  Shamsul  said  that  Petronas  US$32bn  project  to  build  a  LNG terminal in Canada is not at  risk of being deferred, but it is looking to “farm out” another 12% of its equity interest to a suitable partner. (Source: The Star, The Edge Financial Daily)

Comments:  We are pleasantly surprised by the revised capex cut of 10%-15%, from the earlier guidance of 15%-20% cut, despite the lower current oil  price  (compared  to  oil  price  in  Nov14).  Investor  will  also  welcome  the assurance  that  RAPID  project  will  proceed  as  scheduled.  That  said,  we opine  that  the  market  has  partly  priced-in  the  improving  (less  negative) newsflow as the oil & gas shares prices are well off from their low in Dec14. Notwithstanding the improving newsflow, we maintain our NEUTRAL stance on the sector. We opine that consensus are overly bullish in the earnings forecast and the disappointments in upcoming corporate earnings will cap the upside potential.

Source: Affin Hwang Capital Research - 2 Mar 2015