PP 7767/09/2010(025354)

5 October 2010
RHB Research
Corporate Highlights

Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

S e cto r Upd at e
5 October 2010
MARKET DATELINE
Recom : Neutral
Oil And Gas (Maintained)

Petronas’ 1QFY11 Net Profit Up

Table 1 : Oil And Gas Sector Valuations

Fair EPS EPS growth PER P/NTA P/CF GDY
FYE Price value (sen) (%) (x) (x) (x) (%) Rec
(RM/s) (RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Dialog Jun 1.13 1.30 8.8 10.7 50.4 21.1 12.8 10.6 3.7 11.7 4.3 OP
P Gas^ Mar 10.84 11.63 72.9 75.6 2.7 3.7 14.9 14.3 3.4 10.5 7.2 OP
Dayang Dec 2.20 2.61 20.1 22.9 22.6 14.0 11.0 9.6 1.8 9.0 2.7 OP
Kencana July 1.73 1.80 12.0 13.8 46.0 14.5 14.4 12.6 2.9 10.8 0.5 MP
SapuraCrest^ Jan 2.42 2.41 18.5 19.5 10.0 5.2 13.1 12.4 2.1 4.8 2.9 MP
Wah Seong Dec 2.19 1.79 13.8 15.9 62.5 15.2 15.9 13.8 1.7 4.6 2.3 UP
Petra Perdana Dec 0.84 0.50 5.3 11.3 +>100 +>100 15.9 7.4 0.5 13.5 2.4 UP
KNM Dec 0.50 0.37 3.7 5.1 +>100 37.4 13.4 9.7 5.2 8.8 4.0 UP
Sector Avg 16.4 9.8 14.2 12.9
Sector Avg (excl Pet Gas) 46.2 18.8 13.2 11.1
^ FY10-11 valuations refer to those of FY11-12

♦ Petronas net profit up 60.5%. Petronas’ 1QFY3/11 net profit grew a Table 2. Basis For Fair Value Estimates

significant 60% yoy on the back of higher revenue from higher oil prices and Company Valuation Basis
Dialog Target PER of 15x FY06/11,
cost-cutting measures. The upstream and gas and power divisions’ EBIT
premium to the sector
earnings grew 54.1% and 27.9% respectively. However operationally all
benchmark due to good
divisions’ production were flattish. These results are unsurprising given that management and robust
2009 was a watershed year for the whole of the oil and gas sector. balance sheet.
Dayang Target FY12/11 PER at 13x in
♦ FY11 outlook and beyond. According to Petronas’ website, the average line with the sector
selling price for Tapis Blend has increased 34% yoy. Given that Petronas’s benchmark.
revenue tracks average crude oil prices, we believe FY11 profits would be Kencana Target FY12/11 PER at 15x,
better than FY10’s given the low base effect of previous year. However on a premium to the sector
benchmark due to continuous
qoq basis going forward, it should prove relatively flattish as crude oil prices
contract flows.
have generally remained in a tight trading range since the beginning of 2010.
KNM Target FY12/11 PER at 10x to
♦ Comments from the board. In a press conference yesterday, CEO Datuk factor in higher earnings risk.
Petra P’dana Target FY12/11 PER at 10x
Shamsul Azhar Abbas cautioned that the global environment was fragile while
for marine, plus share of
the company’s quarterly statement mentioned the industry is expected to Petra Energy’s FV at 9x, to
remain highly competitive, fast-paced and challenging. The group mentioned factor in higher earnings risk.
that it hopes to maintain a similar dividend amount of RM30bn and expects PetGas DCF
Malaysia's first regassification plant (in Malacca) to be ready to process some SapCrest Target FY01/12 PER at 13x,
3.5m tonnes of imported liquefied natural gas (LNG) by July 2012. in line with the sector
benchmark.
♦ Outlook. While we believe the oil & gas industry is still facing some Wah Seong Target FY12/10 PER at 13x,
uncertainty as the near-term direction of crude oil prices remains in line with the sector
benchmark.
unconvincing, there is a high chance that the sector’s sentiment could be fired
Source: RHBRI
up by several catalysts including: 1) MMHE’s listing by end-October including
subsequent news on Petronas’ Chemicals listing; and 2) More details on the oil
and gas Entry Point Projects (EPP) under the Economic Transformation
Programme (ETP). Having said that, we opt to be conservative at this juncture.

♦ Bullish longer-term outlook. Our Neutral call on the sector thus remains
unchanged for now. We would be inclined to review our call should the awards
pick up pace in 4QFY10, Longer-term earnings visibility for O&G service Yap Huey Chiang
providers is positive on the back of Petronas’ growing investments in domestic (603) 9280 2239
fields in their bid to sustain the nation’s production levels. We maintain Dialog yap.huey.chiang@rhb.com.my
as our top pick.

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Table 2: Petronas Quarterly Results

1QFY10 2QFY11 YoY (% )

Upstream 8,345 11,054 32.5%

Gas and Power 9,372 13,408 43.1%

Downstream 24,818 30,599 23.3%

Corporate and Others 3,901 3,494 -10.4%

Revenue 46,436 58,555 26.1%

Cost of revenue -29,227 -35,362 21.0%

Gross profit 17,209 23,193 34.8%

GP Margin (%) 37.1% 39.6% 6.9%

EBITDA 19,427 25,207 29.8%

EBITDA Margin (%) 41.8% 43.0% 121.2%

Selling and distribution expenses -654 -896 37.0%

Administration expenses -1,861 -1,970 5.9%

Other expenses -1,162 -1,871 61.0%

Other income 2,129 3,487 63.8%

Operating profit 15,661 21,943 40.1%

Operating profit (%) 33.7% 37.5% 11.1%

Financing costs -746 -865 16.0%

Share of profit after tax and minority interest of equity accounted
associates and jointly controlled entities 476 307 -35.5%

Profit before taxation 15,391 21,385 38.9%

PBT Margin (%) 33.1% 36.5% 10.2%

Tax expense -4,210 -6,762 60.6%

Minority interests -3,504 -2,305 -34.2%

Net Profit 7,677 12,318 60.5%

Net Profit Margin (%) 16.5% 21.0% 27.2%

Segmental Operating Profit

Upstream 7,645 11,784 54.1%

Gas and Power 4,854 6,206 27.9%

Downstream 2,241 2,011 -10.3%

Corporate and Others 336 1,359 304.5%

Operating Profit 15,076 21,360 41.7%

Elimination of inter-segment and adjustments1 585 583 -0.3%

Consolidated operating profit 15,661 21,943 40.1%

Margin ppts

Upstream 92% 107% 14.99

Gas and Power 52% 46% (5.5)

Downstream 9% 7% (2.5)

Corporate and Others 9% 39% 30.3

Operating Profit 32% 36% 4.0

Source: Petronas

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Table 3. Average Tapis Oil Prices

Q1FY10 Q1FY11 YoY (% )

Average Tapis Blend Crude Oil Price 57.78 77.28 34%

Source: Petronas Website

Figure 1: Historical Average Tapis and WTI Crude Oil Prices

160

140
Tapis B lend
WTI Crude Oil
120

100

80

60

40

20

Source: Bloomberg

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Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

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