Analysts have mixed views on Petronas

PETALING JAYA: Analysts are generally mixed on the performance and outlook of Petroliam Nasional Bhd (Petronas) going forward, amid the uncertainty that blankets the global oil and gas (O&G) sector.

Hong Leong Investment Bank Research (HLIB) said on Thursday that the O&G player registered a 12.7% higher core net profit at RM7.1bil in the third quarter of financial year 2016, on a year-on-year basis (YoY). However, its core net profit for the first nine months of financial year 2016 (9MFY16) dropped to RM24.8bil, down 19.4% YoY.

Core profit after tax for the upstream segment declined by 32.1% YoY in 3QFY16 mainly due to lower realised oil prices in the quarter, consistent with global oil price trend and lower LNG volume due to lower trading volume. This is despite an increase in production volume YoY due to resumption of operations in of Sabah Sarawak Gas Pipeline, higher facilities uptime in Malaysia and Canada and better production from Indonesia and Australia.

As for the downstream segment, the profit after tax improved 6.1% YoY in 3QFY16 primarily due to better international refining and marketing margins. This is despite the lower petroleum product and crude oil sales volume.

To date, Petronas has spent RM35.9bil worth of capital expenditure primarily on RAPID, upstream projects and Sabah Ammonia Urea (SAMUR) project. HLIB noted that the amount accounts for 68.4% of capital expenditure target by Petronas and is largely in line with its opinion.

“We do not anticipate any major change in capital expenditure plans by the group as the oil market is still volatile.

“Operational cash flows which stood at RM36.1bil, is almost identical to its year-to-date capital expenditure. This indicates that its operating cash flow at current rate provides little to no buffer for further dividend payment,” said HLIB in its report, while adding that to sustain Petronas’ dividend payment in medium term, it has to draw from its own cash coffer of RM114.6bil or issue more debt if terms are more favourable.

The research house has maintained its “neutral” recommendation on Petronas.

Meanwhile, Kenanga Research indicated that it expects Petronas’ net cash position to weaken further as the operating cash flow generated in 9MFY16 is merely sufficient to cover its committed capital expenditure while the remaining committed dividend payment of RM4bil is due in 4QFY16.

“We also continue to hold the view that capital expenditure and operational expenditure allocations will be rather selective going forward,” said the research house in its report.

As new round of contract awards from Petronas such as Pan Malaysia T&I contract and topside maintenance job are likely to materialise in the near term, companies such as SapuraKencana Petroleum Bhd, Dayang Enterprise Holdings Bhd and Barakah Offshore Petroleum Bhd are projected to be the potential beneficiaries.

Kenanga Research has retained its “neutral” recommendation on Petronas, amid the challenging operating environment.

AmInvestment Bank said that Petronas’ 3QFY16 total daily output of crude oil, condensates and gas rose by 2% due to the resumption of the Sabah-Sarawak Gas pipeline operations, higher plant utilisation in Malaysia and Canada as well as higher output from Indonesia and Australia, on a YoY comparison.

The research house has also noted that it does not expect any significant change in the group’s a cautious approach to upstream exploration and development expenditures, as Petronas has not revised its crude oil price outlook at US$30/barrel for 2016 and US$40/barrel for 2017.