Integrated Oil & Gas - Focusing On Earnings Resiliency; Still OVERWEIGHT

Date: 
2024-09-06
Firm: 
RHB-OSK
Stock: 
Price Target: 
3.90
Price Call: 
BUY
Last Price: 
2.45
Upside/Downside: 
+1.45 (59.18%)
Firm: 
RHB-OSK
Stock: 
Price Target: 
3.09
Price Call: 
BUY
Last Price: 
2.20
Upside/Downside: 
+0.89 (40.45%)
Firm: 
RHB-OSK
Stock: 
Price Target: 
3.32
Price Call: 
BUY
Last Price: 
2.65
Upside/Downside: 
+0.67 (25.28%)
  • Maintain OVERWEIGHT; Top Picks: Dialog, Yinson and Dayang Enterprise (DEHB). Despite lingering uncertainties within the domestic oil & gas scene coupled with trimming our crude oil projections, we still maintain our sector call premised on the recovery in oil prices. We also prefer upstream services players with greater exposure in the maintenance-related space, as they provide greater earnings resilience, coupled with corporations with international diversification.
  • Petronas’ 1H24 report card. The national oil company’s PAT fell by 19% YoY to MYR32bn, in tandem with a lower EBITDA (-9%) no thanks to the lower profit from the gas segment, deconsolidation of subsidiaries and higher tax expenses. It paid a MYR12bn dividend to the Government in 1H24, putting it on track to its full-year payment of MYR32bn. The net cash position improved slightly QoQ (+6%) to MYR116bn as of 2Q24, as its strong operating cash flow (+34% QoQ; -3% YoY) was offset by capex and dividend payments.
  • Discussion still ongoing. Capex spending improved in 2Q24 (+40% QoQ; +38% YoY) to MYR15bn, lifting the 1H24 figure to MYR25.7bn (+20% YoY). The upstream segment (58%) was the largest contributor, followed by gas (17%). News reports stated that Petronas and Petroleum Sarawak Berhad (Petros) remain strategic partners in the development of hydrocarbon in Sarawak and both parties are still in discussion in order to achieve a win-win situation. As such, the impact will be dependent on the final outcome. Following our conversations with different players within the upstream segment, most services players, especially in the maintenance space are still relatively optimistic over its near- to medium-term outlook buoyed by strong orderbook and the importance of maintenance work towards exploration and production players.
  • We cut our Brent crude oil price forecasts for 2024-2025 to USD82 and USD80/bbl (from USD88 and USD83) subsequent to price underperformance in 3Q24 to reflect current weak sentiment on rising concerns over potential persistent demand weakness particularly in China, Europe and the US. We expect oil prices to recover from current levels but we do not discount the possibility of a further downside adjustment risk should the global economic outlook remain below our expectations. Downside risks to our sector weighting: Weaker oil prices and demand, as well as a decrease in spending by clients.

Source: RHB Securities Research - 6 Sept 2024

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