• Maintain OVERWEIGHT; Top Picks: Dialog, Yinson and Dayang Enterprise. Despite Petronas expecting lower oil prices for 2024, we remain positive on the upstream services players, as the sustained activities in this segment should be backed by the national oil company’s capex allocation of MYR50- 60bn (2023: MYR52.8bn) – despite 1Q being a seasonally weak quarter due to the monsoon season. We still favour the upstream service providers. Our 2024-2025 crude oil price estimates remain at USD85-80/bbl.

• Petronas’ FY23 report card. Its PAT (excluding impairments) fell by 17% YoY to MYR87bn on weaker EBITDA (-25% YoY, due to lower average realised prices) in FY23. It paid a MYR12bn dividend to the Government in 4Q23, bringing FY23 payments to MYR40bn. Petronas has approved a dividend of MYR32bn in FY24, payable over March-December. Its net cash position remained flat QoQ at MYR108bn, as of 4Q23.

• Capex in the range of MYR50-60bn in 2024. Capex spending continued to accelerate in 4Q23 (+42% QoQ) to MYR18.4bn, lifting the FY23 figure to MYR52.8bn (+5% YoY). The upstream segment was the largest contributor (51%), followed by the gas and Gentari businesses at 18% and 12%. Domestic capex accounted for 50% of total capex and surged by 41% YoY in FY23 to MYR26.2bn, due to the near-shore floating LNG project in Sabah, the Kasawari gas field project, and carbon dioxide (CO2) sequestration facilities in Sarawak. Petronas has allocated capex of MYR50-60bn for 2024 (vs its 5- year average annual capex guidance of MYR60bn), of which 20% is meant for decarbonisation and expansion into cleaner energy solutions. Its renewable energy (RE) capacity in operations and under development increased by 0.5GW QoQ to 2.9GW (1.6GW is installed capacity), putting it on track to meet the target of 3GW by 2024. Overall, we remain positive on the upstream service providers in 2024, with sustained activities – despite 1Q usually being a seasonally weak quarter due to the monsoon season. Drilling activities should remain solid, similar to maintenance activities. Meanwhile, the outlook for the OSV market is rosy, as there are still potential improvements in daily charter rates due to tight vessel supply.

• Oil price view. President and Group CEO Tan Sri Tengku Muhammad Taufik Tengku Aziz expects a correction in oil prices this year amid prolonged uncertainty in the market as the Middle East conflict continues, with a projection of USD73/bbl in the near term and USD63/bbl in the long term. We have more bullish oil price assumptions of USD85/bbl and USD80/bbl for 2023-2024. Oil prices may rise in the near term if geopolitical tensions continue to escalate. The extension of a voluntary production cut of 2.2mbpd by OPEC+ until 2Q24 will continue to stabilise the oil market, while investors seem to price in the potential rollover of such a voluntary cut.

• Downside risks to our sector weighting: Weaker oil prices and demand, as well as a decrease in spending by clients.

Source: RHB Securities Research - 18 Mar 2024