KUALA LUMPUR (Sept 6): Hong Leong Investment Bank (HLIB) Research has upgraded the oil and gas (O&G) sector to “overweight” and said Petroliam Nasional Bhd (Petronas) recorded a decent second quarter of 2023 (2Q2023) core net profit of RM18.9 billion — up 14% quarter-on-quarter (q-o-q) but down 16% year-on-year (y-o-y) — bringing first half of 2023 (1H2023) core earnings to RM40.8 billion, down 7% y-o-y.

In a sector update on Wednesday, the research house said the weaker performance was mainly due to lower average realised product prices across the board throughout the quarter as Brent averaged at US$78 per barrel (/bbl) in 2Q2023 (versus US$82/bbl in 1Q2023 and US$112/bbl in 2Q2022).

HLIB said Petronas’s 1H2023 capital expenditure (capex) stood at RM21.4 billion (up 13% y-o-y), with 18% (or about RM3.9 billion) invested in new energy initiatives.

It said that in 1H2023, domestic capex mix stood at RM10.5 billion (up 48% y-o-y).

“We maintain our Petronas capex projection of RM50 billion for 2023.

“Petronas’ dividend commitment stands at RM40 billion for 2023.

“We raise our Brent crude oil forecast to US$80-85/bbl for 2023 (EIA: US$83/bbl).

“We upgrade the O&G sector to 'overweight' with Bumi Armada Bhd ('buy'; [target price (TP)]: RM0.71) and [Wasco Bhd, formerly known as] Wah Seong Corp Bhd ('buy'; TP: RM1.25) as our revised top picks,” it said.