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Thursday, 17 November 2016 | MYT 12:17 PM

Analysts have mixed views on Petronas

BY GANESHWARAN KANA
PETALING
OurSites JAYA: Analysts
More are generally mixed on the performance and outlook of Petroliam
UPDATEDEVERY Nasional
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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 prot at RM7.1bil in the third quarter of nancial year 2016, on a year-on-year
basis (YoY). However, its core net prot for the rst nine months of nancial year 2016 (9MFY16)
dropped to RM24.8bil, down 19.4% YoY.

Core prot 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 prot after tax improved 6.1% YoY in 3QFY16 primarily due to
better international rening and marketing margins. This is despite the lower petroleum product and
crude oil sales volume.

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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 ows which stood at RM36.1bil, is almost identical to its year-to-date capital
expenditure. This indicates that its operating cash ow 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 ow generated in 9MFY16 is merely sufcient 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 beneciaries.

Kenanga Research has retained its neutral recommendation on Petronas, amid the challenging
operating environment.
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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 signicant change in the groups 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.

TAGS / KEYWORDS:
Analyst Reports , Oil & Gas , Petronas

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