PETALING JAYA: As the saying goes, bad things come in threes. First it was the Covid-19 outbreak, then came the infamous Sheraton move and all the political upheaval that followed, and now Malaysia’s economy has to face the repercussions of the freshly launched crude oil price war.
In a note, MIDF Research said the negative consequences on the Malaysian economy from this will outweigh the positive.
“On the positive side, retail fuel price, especially RON95 might touch RM1.32 per litre if the average Brent oil price is at US$35 pbd. Hence, inflationary pressure to stay low and support domestic consumption.
“On the flip side, a plunge in global oil price will suppress Malaysia’s fiscal capacity given that the previous Budget 2020 is based on the assumption of US$62 pbd,” it said, adding that the newly formed government will likely revise the Budget 2020 and we may see reduction in government expenditure and investment.
As for mining activities, the research house sees a continuous slowdown in the sector amid weak demand and nosediving global oil prices, which will affect Malaysia’s GDP significantly due to its high value-added content.
UOB Kay Hian pointed out that Petroliam Nasional Bhd (Petronas) has budgeted its 2020 activities on a high US$50 a barrel oil price assumption, and guided for local capital expenditure (capex) to rise year-on-year from RM25 billion to RM26-RM28 billion while its total upstream spending is to be in the range of RM32-RM34 billion.
“Covid-19 will be a triple whammy to Petronas in the form of oil prices (upstream income), petrochemical demand (downstream income) and disruptions/force majeures on long-term LNG exports. Unfortunately, Petronas said in its February media briefing that no special action is being undertaken to address Covid-19.
“Although now combined with the current failure of Opec+, we think Petronas may be forced to take action and may reduce activities if its 1H20 cash flow is going to see severe impact.
It also said Petronas could be a loser in the latest political changes, whereby Gabungan Parti Sarawak’s (GPS) is seen to be gaining more leverage against the federal government and the new prime minister, which may lead it to cutting local capex outlook.
“Assuming oil majors (especially Petronas) cut capex, it will impact all upstream stocks, especially yards and rig players like Malaysia Marine and Heavy Engineering Holdings Berhad and Velesto Energy,” it said.
CGS CIMB Research pointed out that some of the local oil & gas companies that stand to lose the most are Velesto Energy Bhd Petronas Dagangan Bhd, Sapura Energy Bhd and Petronas Chemicals Bhd.
“For FY20, Velesto has four rigs chartered to Petronas that are due for renewal and these may not be renewed at our assumed higher rate of US$75,000/day vs. US$70,000/day currently. Petronas Dagangan may be hit by large lagged inventory losses in the first quarter , which may impact its full-year dividends assuming that it sticks to its historical payout ratio.
On the other hand, Dialog Group Bhd and Lotte Chemical Titan Holdings Bhd can potentially benefit from the global oversupply of oil that will need to find storage space, possibly at its short-term independent terminal at Pengerang SPV1.
For the sector overall, AmInvestment Research has downgraded its call on the sector underweight from overweight with revised calls to “sell” for Bumi Armada Bhd, Dialog Group, MISC Bhd, Sapura Energy, Serba Dinamik Holdings Bhd and Velesto Energy.
source https://www.thesundaily.my/business/revisions-YF2106643
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