Industry sources have highlighted that Petronas will likely slow down in awarding  new  contracts.  While  we  believe  that  onshore  projects  such as  the  Refinery  And  Petrochemicals  Integrated  Development  (RAPID) petrochemical  complex  has  a  higher  risk  of  being  delayed,  we  remain bullish on offshore activities. We prefer offshore O&G players, ie asset owners and companies interested in pursuing marginal oilfields.

- Potential  contracts  to  be  awarded.  Industry  publication,  Upstream, recently reported that Petronas has invited expression of interest for the development of the new central processing platform (CPP) of its Baram Delta gas gathering project off Malaysia. Formal tender is expected to be issued  by  March  2014  at  the  latest,  suggesting  that  the  engineering, procurement,  construction,  installation  and  commissioning  (EPCIC) contract will be awarded by early 2015. Similarly, we are expecting more news  flow  on  the  risk-sharing  contracts  (RSC)  as  there  are  another  10 marginal  fields  that  have  been  identified  and  are  opened  for  bids. Petronas’ Pan Malaysian cluster’s transport & installation (T&I)  jobs are also expected to be awarded soon.

- Concerns over RAPID. Petronas’ CEO and President, Tan Sri Shamsul Azhar  Abbas,  pinpointed  the  importance  of  RAPID’s  execution  and timeliness.  In  view  of  Vietnam’s  aggressive  plans  to  expand  its petrochemical  refinery  capacity,  RAPID’s  viability  could  be  at  risk. Although  we  believe  there  is  little  likelihood  of  RAPID  being  completely scrapped, we do not discount the possibility of it being scaled down.

- Valuations  justified.  Our  valuations  for  most  of  the  oil  &  gas  (O&G)  companies  under  our  coverage  are  justified,  premised  on  the  following assumptions: i) Petronas’ allocation of MYR300bn  capex  from  2011-2015,  ii)  oil  prices  to  remain  above  USD90  per  barrel  (bbl),  and  iii) anticipation of more contracts being awarded in 2HCY13.   

- Top  Picks.  Our  Top  Picks  are  SapuraKencana  Petroleum  (SAKP  MK, BUY, FV: MYR4.96) for the large cap space, Dayang Enterprise (DEHB MK,  BUY,  FV:  MYR6.50)  for  the  mid-cap  space  and  Alam  Maritim (AMRB MK, BUY, FV: MYR2.00) for the small-cap space.

Source: RHB