Analyst turns cautious on O&G maintenance players as Sarawak takes over its natural gas trading from Petronas

Publish date: Wed, 10 Jul 2024, 09:42 AM

KUALA LUMPUR: AmInvestment Bank Bhd has maintained an "overweight" rating on the oil and gas (O&G) sector in view of Sarawak's gas roadmap, which is expected to spur foreign direct investments through the creation of four gas hubs.

AmInvestment Bank said the Sarawak government recently announced that Petroliam Nasional Bhd (Petronas) and Petroleum Sarawak Bhd (Petros) have agreed to enter into a definitive agreement to formalise Petros's role as the sole gas aggregator for natural gas assets in the state.

It said the development effectively empowers Petros with control over the supply and flow of natural gas produced within Sarawak, the bank said today in a research note entitled "Changing tides on local shores."

The role is designed to support the government's 10-year Sarawak gas roadmap, which is envisioned to spur foreign direct investments through the creation of the gas hubs in Kuching, Bintulu, Samalaju and Miri.

"Hence, we expect to see massive requirements for natural gas for the state's domestic consumption in the medium term at a cheap rate to maintain its competitive advantage.

"Should the rates be shared with upstream operators, we are wary that this may create a negative impact on Petronas's earnings and subsequently lead to a downward revision in the group's 5-year RM300 billion capital expenditure (capex) commitment.

"We turn more cognisant over the recent shortfalls in expectations with this year's first quarter capex of RM10.7 billion (+2 per cent year-on-year), which came in at only 18 per cent of full-year expectation," the bank said.

With this in mind, AmInvestment Bank said investors should adopt a more cautious stance on prospects from the local O&G maintenance scene, particularly on investors operating within greenfield developments.

It opined that brownfield maintenance contractors will continue to win jobs but advised investors to be wary of high expectations from Petronas's umbrella contracts and select clients with a more diversified clientele at more attractive entry points.

In maintaining an "overweight" rating on the O&G sector, the bank said its top picks include Dialog Group Bhd, which is supported by its resilient non-cyclical tank terminal and maintenance-based operations and strategically-located Pengerang developments, as well as Yinson Holdings Bhd, the primary beneficiary of the floating production storage and offloading upcycle.

"We also like Petronas Gas Bhd, which offers a decent dividend yield of 4.7 per cent, which could be raised further from the optimisation of its capital structure together with sustainable recurring earnings for its gas transportation and processing operations," it added.

  - Bernama

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