KUALA LUMPUR: Kenanga Research has initiated coverage on Petron Malaysia Refining & Marketing Bhd
with a “market perform” recommendation and target price of RM4.65.
“Our ascribed valuation is also broadly in line with some of its other listed refinery peers globally for example TOA Oil, Phillips 66, HF Sinclair, Valero, Marathon Petroleum. “Note that our target price has taken into account our in-house environmental, social and governance or ESG rating of two stars, which warrants a 5% discount to our initial valuations,” the research house said.
The group primarily operates the Petron Port Dickson Refinery, with a rated capacity of 88,000 barrels per day, and is also involved in petroleum products marketing and retail kiosks.
“As a largely refinery play, the group’s earnings are susceptible to the fluctuations of crack spreads, which has fallen drastically since peaking in mid-2022 amid deteriorated demand outlook.
“Although some mild reprieve is expected in the coming months, product prices are not likely to be anywhere near the peaks earlier in the year – resulting in possibly weaker earnings in the coming quarters,” it said.
According to Kenanga Research, the Singapore Mogas 92 (Platts) Brent crack spread futures have fallen off a cliff from its peak in May-June 2022, and hence, the research house is anticipating results for the upcoming quarters to be drastically weaker.
Crack spreads have generally enjoyed a gradual increase since 2021, underpinned by the declined global refining capacity amid refinery closures during the pandemic, low inventories, coupled with improved global demand for petroleum products as the world transitions out of the pandemic.
The addition of the Russian-Ukrainian conflict has pushed crack spreads even further to peak in May and June 2022.
Since then, Kenanga Research said crack spreads had declined steeply as regional supply has outstripped demand coupled with the inventory build-up, while recessionary fears continue to cast doubts over future demand.
“As such, we believe Petron Malaysia’s strong first-half 2022 results may be hard to replicate, and that results for the upcoming quarters may be significantly weaker,” it pointed out.
The research house said petrol product prices could see a mild rebound in coming months, but not near the mid-2022 peaks.
