CIMB Securities has maintained its OVERWEIGHT stance on Malaysia’s oil and gas (O&G) sector after Petroliam Nasional Bhd (Petronas) delivered stronger first-half earnings, supported by higher realised energy prices and stronger LNG and gas sales despite a substantial accounting drag from PRefChem.
Petronas’ revenue rose 15% year-on-year to RM152.4 billion in 1H26, supported by higher realised product prices as average Brent crude prices increased 28.4%, alongside stronger liquefied natural gas (LNG) and processed gas sales volumes.
These gains were partly offset by the US dollar weakening 9.1% against the ringgit.
EBITDA increased 4.3% to RM56.8 billion, while profit after tax rose 3.9% to RM27.2 billion. Cash flow from operations remained broadly stable at RM47.5 billion, down 1.2% from a year earlier.
CIMB said Petronas’ upstream and gas and maritime businesses were the main earnings drivers, offsetting a substantial headline loss at the downstream division arising from accounting treatment related to Pengerang Refining Company (PRC) and Pengerang Petrochemical (PPC), collectively known as PRefChem.
Petronas’ upstream profit after tax surged 69.9% year-on-year to RM28.1 billion, driven by stronger realised prices and RM5 billion of divestment and dilution gains associated with Searah, its 50:50 joint venture with Eni.
The improvement came despite average production declining 2.9% to 2.3 million barrels of oil equivalent per day, mainly due to lower crude oil and condensate production.
Its gas and maritime segment also recorded a strong performance, with profit after tax rising 60.4% to RM16.7 billion on improved LNG net product margins.
Gross LNG sales volumes increased 17% to 20.3 million tonnes, supported by higher production from the Petronas LNG Complex and the full commercial operations of LNG Canada.
Malaysian sales-gas volumes increased 12.4% to 3,111 million standard cubic feet per day.
The downstream business, however, recorded a RM15.2 billion loss after tax, widening sharply from a RM900 million loss in 1H25.
CIMB attributed the headline loss primarily to the recognition of RM22.2 billion in previously unrecognised accumulated losses relating to the equity-accounted PRefChem joint venture following an additional investment during the period.
Excluding the accounting charge, CIMB said the downstream division would have generated RM7 billion in profit after tax, helped by improved product margins.
Petroleum product sales volumes increased 3% to 102 million barrels, while chemical sales volumes declined 2% year-on-year.
Petronas’ capital investment jumped 133.2% year-on-year to RM41.4 billion in the first half, largely reflecting additional investment in the existing equity-accounted PRefChem joint venture.
CIMB believes the investment relates to PRC and forms part of Petronas’ broader move towards full ownership of the joint venture.
Cash invested in associates and joint ventures consequently surged to RM24.6 billion from just RM100 million in 1H25.
However, CIMB noted there had been no disclosed change to Saudi Aramco’s 50% ownership in PRefChem.
Excluding the additional joint-venture investment, underlying spending was considerably steadier. Purchases of property, plant and equipment and intangible assets were broadly unchanged at RM16.8 billion.
Upstream investment increased 5% to RM9 billion, while gas and maritime investment was broadly unchanged at RM5.4 billion.
CIMB believes oil prices remaining above levels seen before the US-Iran conflict should continue supporting Petronas’ earnings and could eventually translate into stronger domestic offshore capital expenditure.
The research house forecasts Brent crude at US$80 per barrel in 1H27.
It said sustained higher oil prices could improve the economics of upstream development projects, encouraging Petronas to accelerate spending.
Maintenance activity could also recover as oil prices stabilise and operators gain greater cash-flow visibility, potentially allowing previously deferred brownfield and asset-integrity work to resume.
Against this backdrop, CIMB named Dayang Enterprise Holdings Bhd and MISC Bhd as its top sector picks.
Dayang provides exposure to a potential recovery in domestic upstream spending, while MISC offers large-cap exposure to the sector. CIMB also has BUY recommendations on Velesto Energy Bhd and Dialog Group Bhd.
Key risks to its OVERWEIGHT stance include less severe supply disruptions than expected from the West Asia conflict, a sharper global economic slowdown and weaker-than-anticipated global oil demand growth.
