PETALING JAYA: Petroliam Nasional Bhd (PETRONAS) is expected to spend RM15.7bil in capital expenditure (capex) in the final quarter of 2023, taking its full year capex to RM50bil despite posting lower earnings year-on-year (y-o-y).
It spent RM34.3bil in capex in the nine months ended Sept 30, 2023 (9M23), with RM16.4bil of that on operations domestically while RM5.5bil or 16% of the total on its decarbonisation activities.
“We reckon PETRONAS is on track to achieve our capex projection of RM50bil for 2023, as we note that the bulk of the group’s capex is usually back-loaded in the last quarter,” Hong Leong Investment Bank (HLIB) Research stated in a report on the national oil company.
While profitability may have fallen, HLIB Research remains optimistic PETRONAS will continue to keep an open wallet, helped partly by high average crude oil prices which the research firm forecasts to remain elevated at about US$85 a barrel going into 2024.
In addition, PETRONAS’ net cash position remained stable at RM96.7bil as of end-June from RM97.1bil at the end of December 2022.
This is also after taking into account expectation of PETRONAS’ profits and cash flow normalising this year, in tandem with lower energy and product prices from a high-base effect in 2022.
HLIB Research expects PETRONAS to pay some RM40bil in dividends to the government for 2023 and still have the financial means to meet its annual capex amount.
The domestic capex for 9M23 was mainly earmarked for the nearshore floating LNG project in Sabah, Kasawari Gas Field development work and carbon dioxide sequestration facilities in Sarawak.
For 9M23, PETRONAS posted earnings of RM62.9bil, lower by 13% y-o-y, on lower realised product prices.
For the third quarter alone, core earnings amounted to RM22.1bil, 17% higher quarter-on-quarter but 23% lower y-o-y, after accounting for RM3.5bil of net impairment losses.
With PETRONAS’ fundamentals supportive to the outlook for the oil and gas sector, HLIB Research has maintained its “overweight” stance on the sector with its top picks being names like Bumi Armada Bhd, Hibiscus Petroleum Bhd and Wasco Bhd.
The research house has a “buy” call on Bumi Armada with a target price (TP) of 71 sen, due to its undemanding valuation in anticipation of bumper earnings in financial year 2024.
It also likes Hibiscus, with a TP of RM3.07 a share, given its upstream business will gain from a high crude-oil-price environment.
“We also favour Wasco, with a TP of RM1.27 a share, for its niche expertise of being one of the only few pipe coaters in the world, which is well-positioned to capitalise on the rising demand for pipe-coating services, spurred by the ongoing sector upstream capex upcycle,” the research house added.