KUALA LUMPUR (Feb 26): Analysts are divided on Petronas Nasional Bhd’s (Petronas) capital expenditure (capex) plans for 2025, with some predicting as much as a 20% reduction, while others anticipated maintaining at RM50 billion or more. 

RHB Research, for one, estimated a possible 20% decrease in capex to about RM43 billion in 2025.

"While there is still no guidance over the capex spending targets for this year... especially when there are still uncertainties over some of the work arrangements between Petros (Petroleum Sarawak Bhd) and Petronas," the house said in a note on Wednesday.

The national oil & gas company, in its half yearly results released on Tuesday (Feb 25), reported that earnings fell by 32% y-o-y to RM55 billion — in tandem with a lower earnings before interest, taxes, depreciation, and amortisation, or Ebitda (down 22%), no thanks to weaker average selling prices (ASPs), asset write-offs, and higher tax expenses. 

It paid RM32 billion in dividend to the government in FY2024 (FY2023: RM40 billion). The net cash position deteriorated (-21% h-o-h (half yearly on half yearly); -14% y-o-y) to RM93 billion as of 2HFY2024, subsequent to capex and dividend payments amid weaker operating cash flows (+13% h-o-h; -18% y-o-y).  

Petronas did not, however, share its capex plans for the year.

RHB noted that Petronas spent RM28.5 billion in capex in 2HFY2024 (+11% h-o-h; -9% y-o-y), lifting the FY2024 figure to RM52.8 billion (+3% y-o-y). 

"The upstream segment (52%) was the largest contributor, followed by gas (21%) — the Gentari and downstream businesses had shares of 9% and 7%."

In contrast, Kenanga Research expects Petronas to maintain its capex at RM50 billion or higher, as it continues funding production maintenance despite potential losses in its Sarawak gas aggregation income, which it estimates will not exceed RM10 billion.

"Additionally, the group’s dividend payment of RM32 billion to the Malaysian government seems sustainable, given its RM102 billion operating cash flow in FY2024," it added.

Kenanga said while specific details of the gas aggregation agreement remain undisclosed, it believes that the loss of Petronas’ gas aggregation role to Sarawak is already priced in.

"We believe the prime minister’s announcement aligns with our earlier projection of a potential Petronas capex reduction in the range of RM5 billion to RM10 billion, which is priced by the market, with the KL Energy index selling down by 20% since its peak in June 2024."

This projected reduction is slightly less severe than what the market may have anticipated, it added.

RHB also cited Petronas’ plans to begin its workforce rightsizing by the middle of this year, to improve efficiency.

Further, it noted a general reduction in activity guidance in the latest Petronas Activity Outlook, or PAO 2025-2027, which was not surprising, given the scale-back in spending. 

“We continue to favour the maintenance space — we expect this segment to see the least impact from spending scale-backs, given the importance in maintaining production levels for operating cash flow generation purposes,” it added.

RHB said despite a more challenging overall operating environment, it advocates selective stock selection, with floating production storage and offloading- (FPSO) and maintenance-related players as preferred choices amid attractive valuations.

It kept its 2025 forecast (F)-2027F Brent crude oil prices target at US$75/barrel (bbl).

In a separate note, Hong Leong Investment Bank (HLIB) said although exploration and drilling activities are guided to be lower by Petronas in 2025, it expects offshore service contractors (ie MCM-HUC and offshore support vessel, or OSV players), and onshore plant maintenance contractors to continue to witness elevated work orders.

This, it said, is driven by the recently awarded multi-year Pan Malaysia maintenance, construction, and modification (MCM), and hook-up and commissioning (HUC) services contract packages. 

“Our checks with OSV players suggest that Malaysian-flagged OSVs still remain in severe deficit, and this will in turn support the elevated charter rates in 2025, though growth may be marginal or flattish.”

Overall, HLIB remains positive on MCM/HUC players and plant maintenance contractors, as they will likely outperform other sub-segments. 

“We reckon that continued selldown on the local OGSE (oil & gas, services and equipment) players arising from concerns on Petronas-Petros saga and geopolitical uncertainties might have been overdone, especially on counters with steady earnings outlook in 2025, such as Dayang (Enterprise Holdings Bhd) (KL:DAYANG) (‘buy’; target price/TP: RM3.32).”

HLIB retained its “neutral” rating on the sector, but stayed selective on names with resilient earnings profile and less sensitive to Petronas’s upstream capex programmes. 

One of its top picks for the sector was Dialog Group Bhd (KL:DIALOG) (“buy”; TP: RM2.91) due to expected sequential earnings growth in the coming quarters, driven by lapses of legacy EPCC contracts, and imminent expansion on its midstream tank terminals in PDT3. 

Wasco Bhd (KL:WASCO) (“buy”; TP: RM2.41) is its other top pick, after its share price had retraced sharply over the past few months.

HLIB cited Wasco as an ideal proxy to ride on the capex upcycle of the oil and gas sector globally (ie FPSOs and LNG projects), as well as acceleration in energy transition developments in the areas of carbon capture, utilisation and storage (CCUS), hydrogen infra and renewables (wind and solar). 

“Furthermore, Wasco only derives 30% of its total revenue in Malaysia, implying limited exposure to domestic capex risks,” it added.

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