Capital Expenditure in Petronas facing possible cut due to low oil prices
In this current situation, Affin Hwang Capital research found that Petronas is bound to reduce its capex, a move that could put pressure on the Malaysian oil and gas industry. The financial company further stated that Petronas has yet shown signs of significant delay in its 2020 programme amidst the chaos caused by the virus. However, activities tend to have at least 6-months of lag.
On global fronts, OPEC and Russia show no signs of compromise in supply cuts up to June. The research house deduced that the risk of contract roll out is highly likely, affecting even the potential beneficiaries of the Malaysian oil giant. Those at risk of the continued effects of low oil price are in players in the offshore support vessels and jack up in terms of daily charter rates.
Velesto’s four jack up rigs under Petronas are set to expire by 2H20 and renewal prices are expected to be closer to the market rate. Other OSC players, on the other hand, managed to bag a long-term ILCT contract with DCR, despite it being lower than the current market rate.
The financial research institution further restated its call to sell on MISC, Petronas Gas and Petronas Dagangan while maintaining its hold call on Petronas Chemicals. They also recommended on switching to MMHE (which was previously on hold) from Bumi Armada (downgraded to hold call) due to its net cash of 31 cents per share and MYR 3 billion orderbook. Top picks include Dialog and Serba Dinamik.
Source: The Star