Gloom for O&G stocks despite Petronas’ earnings upswing

Despite Petronas’ 91% YoY annual profit growth to RM45.5b in 2017, investor excitement in local energy stocks is still subdued


OIL and gas (O&G) counters on Bursa Malaysia continue to buckle under selling pressure, as concerns of low project roll-out, thinning margins or losses and uncertain outlook on energy prices prevail.

National oil company Petroliam Nasional Bhd (Petronas) posted a 91% year-on-year (YoY) annual profit growth to RM45.5 billion in 2017, but this has failed to spark investor excitement in local energy stocks and instead prompted a broad sell-off across the sector.

Shares of refiners Hengyuan Refining Co Bhd and Petron Malaysia Refining & Marketing Bhd had fallen incessantly over the past week by 26% and 10.7% respectively (from Feb 28 to March 7).

Hengyuan, whose net profit declined in its fourth quarter ended Dec 31, 2017 (4Q17), saw its shares dropping by over 40% year-to-date following fears of a loss in revenue due to an anticipated delay in commissioning of its new refining facilities.

Petronas’ listed downstream assets, Petronas Dagangan Bhd (PetDag), Petronas Gas Bhd (PetGas) and Petronas Chemical Group Bhd (PetChem), experienced share price weakness despite the national oil company intending to up its capital expendicture (capex) spending for the year to RM55 billion.

Sapura Energy Bhd, meanwhile, tumbled to a historic low of 50 sen in intraday trade yesterday, before closing down 4.5 sen, or 8.1%, at 51 sen ahead of its 4Q financial release expected at the end of the month.

Sapura Energy — the largest O&G company in the country — fell into the red with a net loss of RM274.4 million for the 3Q18 versus a net profit position of RM158.06 million in 3Q17, partially impacted by low capital spending and lower asset utilisations.

Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew said the disposal of O&G stocks were linked to a general lack of confidence that the worst was over for the sector.

“Some of the companies are still exposed to significant financial risks as their balance sheets were highly leveraged when crude oil prices were high. At this point, we have not seen a complete point back in financial strength as yet,” Pong told The Malaysian Reserve.

Pong said despite the better performance posted by the country’s O&G custodian, the capex allocated by Petronas for the current year is limited and falls “no where near” the level when the Brent was traded at the US$60 (RM240) per barrel level.

“New orders have come in from their customers, but the usage of assets remains generally at low level. Oil companies, therefore, have not been able to obtain a healthy cashflow position,” he said.

Apart from the lacklustre sentiment, there is the sell-down pressure by institutional investors like the Employees Provident Fund (EPF) to pay off its bumper dividend.

With sector companies unlikely to pay dividends anytime soon, the EPF has been actively selling stocks like Sapura Energy.

Based on data compiled by Bloomberg, the pension fund has dumped over 10 million shares in Sapura Energy, two million shares in Dialog Group Bhd and 868,900 shares in Bumi Armada Bhd in their respective corporate filings on March 1.

“This has to do with portfolio adjustments in some of the local funds. The O&G stocks were a clear favourite because they hadn’t been performing and that pressured the price even further,” Pong said. He believes the EPF sold its sector exposure partly to pay dividends to contributors.

The EPF declared a dividend of 6.9% for 2017, with a total payout amounting to RM48.1 billion to be distributed to 14 million registered workers. The figure marked the highest EPF dividend in two decades.