KUALA LUMPUR: Downstream players in the oil and gas sector are expected to see limited earnings following ongoing risks in the downstream segment, such as oversupply issues and subsidy rationalisation.
CIMB Securities Sdn Bhd noted investments in manufacturing related to oil and gas projects will remain a strategic focus for the next three years in Sabah.
"Sabah's investments into high-value-added projects, particularly in the downstream sector is bolstered by the launch of the Sabah Gas Masterplan, a collaborative effort between the state government and Petronas in 2022.
"Recent significant developments include the commencement of a US$4 billion oil storage terminal project by Singapore-based Sofos Group and London-based Gibson Shipbrokers Ltd's plan to develop Malaysia's largest single-site storage tank complex at Sipitang Oil and Gas Industrial Park (SOGIP)," it said.
Petronas Chemicals Fertiliser Sabah (PCFS) plant, which is located in SOGIP, encompasses an integrated ammonia, urea, and granulation facility, complete with extensive utilities and jetty infrastructure.
It has a production capacity of 740,000 metric tonnes of liquid ammonia and 1.2 million metric tonnes of urea annually. It maintained a utilisation rate above 90 per cent, reaching peak production in 2021 with 1.98 million tonnes and a 96 per cent utilisation rate.
The firm estimated that this facility contributed around 24.1 per cent annually to Petronas Chemical Group Bhd's (PCG) fertiliser and methanol (F&M) revenue.
Meanwhile, CIMB Securities said Petronas Dagangan Bhds (PDB) Sepanggar Bay oil terminal is one of Malaysia's oldest terminals, with 23 storage tanks for six refined petroleum products.
It handles around 1.2 million litres of oil daily, serving the Sabah west coast region.
"Although we view Petronas' facilities favourably due to their efficient operations, adherence. to stringent safety standards, and robust sustainability measures, ongoing risks in the downstream segment, such as oversupply issues and subsidy rationalisation, are anticipated to limit earnings potential and share price performance of the downstream players," it added.
CIMB Securities has 'hold' calls on both PCG and PDB.