UOB Kay Hian Research keeps Dialog defensive Buy

UOB Kay Hian Malaysia Research keeps Dialog as a defensive buy as it still sees value in Dialog Group Bhd as it is the only listed proxy to storage.

KUALA LUMPUR: UOB Kay Hian Malaysia Research keeps Dialog as a defensive buy as it still sees value in Dialog Group Bhd as it is the only listed proxy to storage.

The research house said on Wednesday it also likes Serba Dinamik, which is Dialog’s peer in O&M maintenance business.

“Although we retain Hold on Yinson, if the second Brazil FPSO (PDB) is awarded without delay, our target price could be upgraded to RM6.46.

“As sector valuations had recovered from March lows, we had earlier downgraded calls on MISC, Deleum and Velesto. We now downgrade MMHE to Sell with unchanged target price on risk-reward basis, as its recurring marine repair prospects may worsen, ” it said in its research note.

UOB Kay Hian Research, when commenting on Petroliam Nasional Bhd’s (Petronas) 1Q20 results released last Friday, said they were beginning to reflect low prices and Covid-19-induced demand.

While Petronas strives to protect local capex, the capex/opex cut plans of 21%/12% (suggesting RM17bil savings) and US$6bil bond proceeds are insufficient to protect against a perfect storm of challenges.

“As Petronas had been slow to implement cuts, we think contract deferrals are likely to increase sector earnings risk despite an oil price recovery. Maintain sector Market Weight, ” it said.

Petronas recorded a 36% year-on-year (YoY) decline in 1Q20 core profit to RM9mil, excluding RM4mil impairments.

Profits from upstream and gas and new energy (G&NE) segments declined mainly due to price movements.

Brent price averaged US$50/bbl in 1Q20, a 20% fall from 1Q19’s US$63/bbl. This overshadowed YoY growths in entitled production (1%), and gross LNG volume (6%).

G&NE was also negatively impacted by a 14% fall (both YoY and QoQ) in domestic gas sales, on lower offtake from the local power sector likely due to lockdowns.

Downstream fell to a loss of RM1m, impacted by poor petrochemical spreads and refining margins, and inventory losses. This overshadowed strong products and petrochemical volume growth of 14%/5%.

EBITDA and operating cash flow (OCF) fell YoY by 27% and 24% respectively, as group costs (excluding impairments) remained high at RM51m.

Plans to cut capex/ opex by 21%/12%, implying savings of RM17b. 1Q20 capex was RM8.5b (similar YoY). The typical yearly capex was RM45bil to RM50bil, and local capex in 2020 was previously expected at RM26bil to RM28bil (2019: RM25bil) on oil price assumption of high US$50/bbl.

“Its new oil price assumption in relation to the cost cuts is unknown, but Petronas will try to prioritise: a) local capex, b) steady assets reliability, and c) projects with the best value.

“We think cutting overseas capex first is a given, as its international project partners had been swift to defer costs since the Covid-19 outbreak.

“However, we believe the cost cuts and strong RM155bil cash (1Q19: RM180bil), along with the US$6bil bond proceeds, may not be sufficient against multiple challenges, ” it said.

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