• Maintain OVERWEIGHT; Top Picks: Dayang Enterprise, Yinson and Bumi Armada. The latest Petronas Activity Outlook (PAO) 2023-2025 still suggests upstream activities to remain robust in 2023. We estimate Petronas’ capex spending to be MYR45-50bn in 2023, with a continuing redeployment of resources to clean energy solutions. Our oil prices for 2023F- 2025F are maintained at USD90/bbl, USD80/bbl and USD80/bbl.

• Petronas’ 2023 capex estimated at MYR45-50bn. The national O&G company’s capex spending for 2022 could potentially land below its MYR60bn target (9M22’s MYR27bn). Petronas, in our view, could allocate MYR45-50bn in capex in 2023 with a 20% allocation to clean energy solutions.

• PAO 2023-2025. The PAO 2023-2025 appears to be neutral as we see quite a blend of upward revisions and downward adjustments on subsegments’ activities in 2023-2024. Overall, we saw most sub-segments have not met their planned targets in 2022, except for OSV supporting production operations, underwater services and fixed structure fabrications. We see more of upward revisions for activities in 2023 but more of downward tweaks to 2024 projections due to an overflow of uncompleted jobs this year to 2023 and Petronas remaining fairly prudent in its spending in the longer run. A greater emphasis in energy transition as Gentari is taking a greater role with ambitious targets being outlined.

• Selective growth. Sub-segments with higher activities in 2023 are drilling (jack-up rig, tender assisted drilling rig (TADR), hydraulic workover unit (HWU)), fixed structure fabrications, OSV supporting drilling and projects, hook-up & commissioning (HUC), and maintenance, construction & modification (MCM) while well decommissioning underwater services, plant turnaround OSV supporting production operations could be lower YoY in 2023. Sub-segments with a positive outlook over the medium term (post 2025) are drilling, well services and underwater services (an upgrade to from steady previously) while most sub-segments remained at a steady/ modest outlook.

• Our thoughts. We maintain a positive stance over the outlook of upstream maintenance related players (ie Dayang, Carimin Petroleum (CARIP MK, NR) and Petra Energy (PENB MK, NR)) for higher HUC & MCM projections in 2023 and domestic drillers (Velesto Energy (5243 MK, NR)). Higher total OSV demand in 2023 is likely to result in better vessel utilisation, benefiting OSV players such as Perdana Petroleum (PETR MK, NR) and Icon Offshore (ICON MK, NR). On the other hand, what caught us by surprise was the sharp reduction in well decommissioning projections which may not bode well for Uzma (UZMA MK, NR). That said, one possible explanation could be that Petronas is looking to extend the life of the wells in order to leverage on current high oil prices. This may eventually benefit Uzma as the company also focuses on brownfield rejuvenation.

• Risks: Weaker-than-expected oil prices and spending by the oil majors.

Source: RHB Securities Research - 21 Dec 2022