RHB Investment Research Reports

Integrated Oil & Gas - MYR300bn Capex Spending for 2023-2027

Publish date: Tue, 14 Mar 2023, 09:42 AM
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  • Maintain OVERWEIGHT; Top Picks: Yinson, Dayang Enterprise, and  Malaysia Marine & Heavy Engineering. We are positive over Petronas’  guidance of MYR300bn capex for 2023-2027 (43% higher than the previous  5-year period) to cater for core business and energy transition agenda.  There is more room for services players, in our view, to demand higher rates amidst tight supply. Our 2023F-2024F crude oil prices are still at USD88- 80/bbl.
  • Petronas’ FY22 report card. Petronas’ PAT doubled YoY to MYR102bn,  in tandem with its higher EBITDA (+70%). The national oil company paid  MYR25bn to the Government in 4Q22, bringing FY22 payments to  MYR50bn. Despite higher contributions to the Government, its net cash position still strengthened to MYR108bn (+5% QoQ; +60% YoY) anchored by stronger operating cash flow in 4Q22 (+1.5x QoQ), totalling MYR135bn  (+72% YoY) in FY22. Although the Government has revised its crude oil assumption to USD80/bbl (from USD90/bbl), it is still expecting Petronas to contribute MYR40bn dividend in 2023, which is higher than the previous projection of MYR35bn. However, we believe such an amount is still reasonable, backed by a solid estimated operating cash flow – this should not jeopardise the national oil company’s balance sheet.
  • MYR300bn capex for 2023-2027. Capex spending accelerated in 4Q22  (+1.9x QoQ) to MYR23.1bn, lifting the FY22 figure to MYR50.1bn (+65%  YoY). The upstream segment was the largest contributor (47%), followed by the downstream and gas divisions at 33% and 11%. Domestic capex increased by 24% YoY in FY22 to strengthen the oil and gas services and equipment (OGSE) system. Interestingly, 25% of the total capex spent or  MYR12.5bn is attributed to energy transition and decarbonisation efforts.  Petronas has guided to spend c.MYR300bn, or an average MYR60bn pa between 2023 and 2027, which is a 43% increase from MYR208.5bn over the previous five years, or MYR41.7bn pa. The increase in capex is to cater for additional investments in core business, clean energy and lowering emissions. Meanwhile, Gentari’s renewable energy capacity in operations and under development increased to 1.6GW in 4Q22 (from 1.12GW in  3Q22).
  • Outlook still positive. Upstream domestic capex and opex increased by  38% and 10% YoY to MYR15bn and MYR19bn in FY22. Additionally, overall group costs also increased 39% YoY to MYR281bn, with revenue growth of 51% YoY, in FY22. We think there is more room for services players to demand for higher rates amidst tight supply. On the global front,  Rystad Energy indicated that the annual greenfield capex has surpassed the USD100bn level in 2022, and continues to grow in 2023 and 2024.
  • Downside risks to our sector call: Weaker oil prices and demand, as well as lower spending by clients.

Source: RHB Securities Research - 14 Mar 2023

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