PETALING JAYA: The recent explosion and fire incident at the Pengerang Integrated Complex (PIC) is expected to have a minimal impact on the oil & gas (O&G) players.
This is despite expected extensive investigations before the Refinery and Petrochemical Integrated Development (Rapid) could fully begin operations, according to AmInvestment Bank Research (AmResearch).
“Nevertheless, we had projected minimal earnings contributions from Petronas Chemicals Group Bhd’s (PetChem) 50%-equity stake in the petrochemical operations of Rapid as management had guided for 2H20 ebitda (earnings before interest, taxes, depreciation and amortisation) breakeven amid a low polyethylene-naphtha spread,” it said in a report.
Given that PetChem has insurance coverage for any damage or losses from this incident, hence the research house expects a minimal FY20 earning impact on the group.
Although Dialog Group Bhd has Pengerang Deepwater Terminals, Am-Research understands that the incident occurred beyond the its terminals’ boundary.
“While Pengerang Terminal 2 and LNG 2 cater exclusively to Petronas, the storage facilities are on a take-or-pay terms. Even if Petronas may not require the storage facilities due to any potential postponement in the Rapid commencement, Dialog’s earnings from these terminals will continue as projected.”
However, AmResearch cautioned that a Rapid delay could slow down Dialog’s recurring income growth from its specialist services and plant maintenance divisions.
At the moment, it expects Dialog to see minimal impact for FY20 given the strong growth from the maiden contribution from 1.3 million m3 storage facilities in Pengerang Phase 2, which has been recently completed together with 120,000m capacity from Tanjung Langsat 3.
Similarly, rotary maintenance services provider Serba Dinamik Group Bhd could also experience slower growth in Malaysia.
“However, given that overseas operations drive 71% of the group’s revenue, we do not expect any decline in revenue growth to be substantive at this juncture.”
On the whole, the research house does not expect the Pengerang incident to significantly affect the earnings prospects of the stocks under its coverage.
“We view that the far more important drivers of negative equity sentiments are the government’s movement control order to restrict non-essential businesses until March 31 due to the novel Covid-19 pandemic together and the ongoing Saudi-Russia oil price war over the past week, which caused a plunge in crude oil prices following the failure of the meeting between Opec and its allies on additional production cuts.”
Saudi Arabia has launched an aggressive oil price war against its rivals after Russia refused to participate with the oil cartel with unprecedented discounts of almost 20% in key markets, apparently targeting Russia and the US shale industry as well as other higher cost producers.
“Whether this action will bring Russia back to the negotiating table remains uncertain given that Russia’s fiscal breakeven price for oil at US$42/barrel, half of Saudi’s US$84/barrel,” it said.
Following AmResearch’s move to downgrade the O&G sector to “underweight” last week, share prices of the stocks under its coverage have already reached their earlier fair values.
