Petronas’ FY22 earnings surged to a record high, posting a core PATAMI of RM94b (adjusted for net impairments) – coming in more than doubled from last year. This was on the back of higher average realised prices for all products as oil prices remained strong, coupled with the favourable impact from foreign exchange.
The oil and gas giant also saw a huge surge in its capex investment in FY22, with the group’s total capex of RM50.1b in FY22 representing a 65% jump YoY from RM30.4b. As before, upstream spending still remained the group’s largest area of investment. Also as previously anticipated, the group’s capex spending was heavily backloaded to the tail-end of the year, with the 4QFY22 individual quarter alone incurring a capex of almost RM23b – making it one of the highest capex spending from the group on a quarterly basis. Going forward, Petronas is guiding a capex spending of RM300b for the next five years of FY2023 – FY2027 (thus averaging to ~RM60b per year) – representing a 43% increase from the previous five-year period of RM208.5b. This will continue spurring the growth of oil and gas activity levels, while also increasing focus on its clean energy portfolio. Meanwhile, the group has also paid out dividends of RM50b to the government in 2022, as intended.
For 2023, Petronas has already committed to a dividend of RM40b to the federal government (which was already slightly revised upwards in the recently tabled revised Budget 2023, from an initial projection of RM35b in the October 2022 version of the national budget tabled under the previous government). Nonetheless, with Petronas’ net-cash position still strong at RM108b (the highest it has ever been since FY2018) on the back of the record-high profit, we see little obstacles for Petronas to meet both its capex and dividend commitments.
With anticipated further ramp-up in capex by Petronas, Keanga said it is expecting the upcoming quarters to see a continued recovery trajectory in local activity levels. Earlier in its readthrough of Petronas’ latest activity outlook, Kenanga highlighted DAYANG to be one of the key beneficiaries, given the planned increase in offshore maintenance, construction and modification (MCM), and hook-up and commissioning (HUC) works. Meanwhile, it believes UZMA could also benefit from the increased level of brownfield activities – especially in an environment of higher oil prices as producers would be more incentivised to enhance well productions. Additionally, demand for jack-up rigs is also expected to improve in 2H 2022 and going into 2023– benefitting rig provider VELESTO.
27% of the sector stock universe missing is forecasts, from nil during the previous quarter. Nonetheless, it still deems it to be an overall satisfactory quarter, as 45% still exceeded expectations, while the remainder met expectations. A continuation from last quarter, the research house is still seeing recovery of activity levels as one of the central themes during the quarter – benefitting many of the local equipment and services providers, although cost inflation still remains one of the key concerns. Amongst the key disappointers include: (i) PCHEM (MP; TP: RM7.80), reporting weaker earnings dragged by poorer product ASPs and spreads, coupled with the heightened energy costs, (ii) VELESTO, dragged by the higher project and corporate costs, and (iii) PETRONM (MP; TP: RM4.35), as crack spreads remained weak.
Kenanga is downgrading the sector to NEUTRAL from OVERWEIGHT, as it sees limited upside catalysts for big-cap Petronas
names (e.g. PCHEM, PETDAG (MP; TP: RM24.00), MISC (MP; TP: RM7.50)), although it continues to see selective opportunities in smaller equipment and service contractors (e.g. ARMADA (OP; TP: RM0.75), DAYANG, WASEONG (OP; TP: RM0.97), YINSON (OP; TP: RM3.65)). Additionally, it is also expecting oil prices to gradually trend lower over the long term from its 2022 high.
