KUALA LUMPUR: Petronas' capital expenditure (capex) is expected to decline in 2025 due to potential delays in certain greenfield projects and revenue losses from Sarawak gas trading activities, says Hong Leong Investment Bank Bhd (HLIB).
The research firm said Petronas 2Q24 capex amounted to RM15 billion, bringing first half 2024 (1H24) capex spending 20 per cent higher at RM25.7 billion.
As Petronas typically ramps up its capex spending in 2H, the research firm said that the group is on track to meet its RM60 billion capex in 2024.
"At this juncture, we are unable to quantify the impact of Petronas capex cuts on domestic-based OGSE (oil gas, services, and equipment) names due to a lack of clarity on the quantum and implementation timeline.
"Until further clarity in the upcoming Petronas Activity Outlook 2025-2027, we think the market will stay cautious on the sector for now," it said in a research note.
Meanwhile, HLIB has downgraded the oil & gas sector rating to 'neutral' as earnings of most OGSE players will likely reach their peak in 2024, coupled with the growing concerns over Petronas potential capex cuts.
The firm also lowered its forecast for Brent crude oil to US$80 per barrel of crude oil (bbl) for 2024 and US$75/bbl for 2025 (from USD85/bbl).
This is in view of slower-than-expected global oil demand growth, especially from China as well as OPEC+ potentially unwinding its voluntary production cuts from 4Q24 onwards, it said.
HLIB's top pick for the sector is Dialog due to expected sequential earnings growth in the coming quarters driven by the lapse of legacy engineering, procurement, construction, and commissioning (EPCC) contracts and imminent expansion on its midstream tank terminals in PDT3.
Another top pick is Velesto, given its recent steep decline in share price, which has been overdone considering its fleet utilisation. Downside risk is limited despite Petronas's deferral in greenfield explorations.
The firm, however, removed Armada as one of the top picks as it was recently downgraded to 'hold' from 'buy'.