PP 7767/09/2010(025354)

02 July 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Sector Upda te
02 July 2010
MARKET DATELINE

Recom : Neutral
Oil And Gas (Maintained)

Petronas Reports Disappointing FY10 Results

Table 1 : Oil And Gas Sector Valuations

Fair EPS EPS growth PER P/NTA P/CF GDY
FYE Price value (sen) (%) (x) (x) (x) (%) Rec
(RM/s) (RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Dialog Jun 1.05 1.30 6.1 8.8 14.9 44.8 17.3 11.9 4.1 15.2 3.2 OP
EPIC Dec 1.85 2.72 26.9 27.2 7.9 1.1 6.9 6.8 0.9 4.8 5.1 OP
SapuraCrest^ Jan 2.19 2.46 16.9 18.9 26.5 12.0 13.0 11.6 2.1 7.7 3.2 MP
P Gas^ Mar 9.85 10.71 62.6 64.4 31.6 2.9 15.7 15.3 3.1 10.6 6.8 MP
Wah Seong Dec 2.18 2.38 16.1 18.3 23.1 14.0 13.6 11.9 2.7 4.7 2.9 MP
Petra Perdana Dec 1.28 1.15 6.8 12.2 -31.1 79.9 18.9 10.5 0.7 1.4 1.6 UP
KNM Dec 0.50 0.49 2.9 4.9 -24.1 69.7 17.5 10.3 8.0 14.2 4.0 UP
Kencana July 1.40 1.27 8.0 9.8 11.3 22.5 17.6 14.4 2.9 12.1 0.4 UP
Sector Avg 8.0 12.9 15.2 13.5
Sector Avg (excl Pet Gas) -5.9 28.5 14.3 11.2
^ FY10-11 valuations refer to those of FY11-12

♦ Petronas reports lower FY10 revenue ... Petronas’ FY03/10 revenue Table 2. Basis For Fair Value Estimates
declined 18.8% yoy to US$62.5bn. This was mainly due to a drop in revenue Company Valuation Basis
from crude oil exploration & production (E&P), LNG sales, and sales of Dialog Target PER of 15x FY06/11,
downstream refined petroleum products. premium to the sector
benchmark due to good
♦ … and profits. While the national oil company was able to hold EBITDA management and robust
margins up at 39.4% vs. FY09 of 41.5%, the lower revenue had a direct balance sheet.
EPIC Target FY12/11 PER at 10x to
impact on the bottom line. As a result, net profit fell 24% yoy to US$11.6bn.
factor in flatter growth and

♦ FY11 outlook and beyond. We note that Petronas’ revenue trend has kept
Kencana
smaller market cap.
Target FY07/11 PER at 13x,
quite close track of average crude oil prices (see Table 3) with the exception of in line with the sector
FY09 when sales were boosted by the gas business, as well as downstream benchmark.
products. Assuming this trend holds, current crude oil price of US$75/barrel KNM Target FY12/11 PER at 10x to
(+12% vs. 31 Mar 2010) implies that Petronas’ FY11 revenue should be better. factor in higher earnings risk.
Petra P’dana Target FY12/11 PER at 10x
♦ Lower overall FY10 capex, shift to domestic. Petronas’ FY10 capex fell for marine, plus share of
Petra Energy’s FV at 9x, to
16.3% yoy although this was mainly due to a 42.4% pullback in international
factor in higher earnings risk.
spending. Domestic capex actually rose by 1.4% yoy. We expect this to PetGas DCF
continue for FY11, in line with earlier statements by Petronas’ new CEO. We SapCrest Target FY01/12 PER at 13x,
believe the shift back to domestic capex was driven by decline in international in line with the sector
reserves in the last two years despite significant capex. Although 58-71% of benchmark.
Wah Seong Target FY12/10 PER at 13x,
capex since 2007 has flowed to the E&P division, we expect the downstream
in line with the sector
refinery and petrochemicals businesses to receive more attention in coming benchmark.
years as the company looks to expand its downstream capability. We highlight Source: RHBRI
four major downstream projects that are being planned including: 1) SOGT; 2)
ammonia and urea plant in Kimanis, Sabah; 3) expansion of Petronas’ Melaka
refinery complex; and 4) proposed LNG regassification terminal in Melaka.

♦ Risks. We believe the oil & gas industry is still facing some uncertainty as the
near-term direction of crude oil prices remains unconvincing. Sharper-than-
expected global slowdown, and especially China and US, could have a negative
impact on demand for petroleum products.

♦ Bullish longer-term outlook. Our Neutral call on the sector thus remains
Yap Huey Chiang
unchanged for now. Nevertheless, beyond this “normalisation” of economic (603) 92802171
growth, we remain bullish on the longer-term outlook. Dialog (OP, FV = yap.huey.chiang@rhb.com.my
RM1.30) is our top pick given the potential for more EPCC projects ahead.

Please read important disclosures at the end of this report.

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Table 3. Petronas Annual Results

FY 31 Mar (RMm) 2007 2008 2009 2010 2010/2009 (%)
Revenue, including
E&P 11,534 14,559 13,276 10,234 (22.9)
Gas 9,795 12,597 17,223 13,433 (22.0)
Downstream 24,442 32,824 39,811 34,321 (13.8)
Logistics & Maritime 2311 2970 3,265 2,162 (33.8)
Others 2902 3265 3,404 2,389 (29.8)
Total revenue 50,984 66,215 76,979 62,539 (18.8)
yoy growth (%) 14.8 29.9 16.3 (18.8)

Operating expenses (26,426) (33,600) (45,050) (37,872) (15.9)

% of revenue 51.8 50.7 58.5 60.6

EBITDA 24,558 32,615 31,929 24,667 (22.7)

EBITDA margin (%) 48.2 49.3 41.5 39.4
yoy growth (%) 32.8 (2.1) (22.7)

Depreciation -2632 (3,282) (4,950) (4,488) (9.3)

Operating profit, including

E&P 4,364 6,431 4,954 1,188 (76.0)
Gas 7,062 9,144 9,807 8,658 (11.7)
Downstream 7,058 10,616 10,201 8,123 (20.4)
Petrochemicals 2,309 2,373 2,303 2,202 (4.4)
Logistics & Maritime 391 81 (54) (108) 100.0
Others 353 253 (528) (308) (41.7)
Operating profit 21,537 28,898 26,683 19,755 (26.0)
Op profit margin (%) 42.2 43.6 34.7 31.6

Other income/expenses 389 435 296 424 43.2

Financing costs (778) (972) (1,004) (730) (27.3)

Pre-tax profit 21,148 28,361 25,975 19,449 (25.1)

Tax (6,702) (8,385) (8,764) (6,303) (28.1)
Effective tax rate (%) 31.7 29.6 33.7 32.4
Minorities (1,584) (1,880) (1,899) (1,504) (20.8)

Net profit 12,862 18,096 15,312 11,642 (24.0)

yoy growth (%) 11.2 40.7 (15.4) (24.0)
Source: Company

Table 4. Petronas Revenue Vs. Crude Oil Price Trend

FY 31 Mar 2006 2007 2008 2009 2010
Petronas revenue (RMm) 44,425 50,984 66,215 76,979 62,539
YoY change (%) 23.2 14.8 29.9 16.3 (18.8)
Avg crude oil price (US$/barrel) 61.0 66.3 83.7 75.6 66.7
YoY change (%) 33.9 8.6 26.4 (9.7) (11.8)
Source: Company, Bloomberg

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 02 July 2010

Table 5. Petronas’ Annual Capex And Reserves

FY 31 Mar (RMm) 2007 2008 2009 2010 2010/2009 (%)
Divisional:
E&P 3,470 5,751 8,256 7,615 (7.8)
Gas 188 211 1,964 324 (83.5)
Downstream
- Marketing, refinery, trading 584 685 789 792 0.4
- Petrochemicals 246 436 367 286 (22.1)
Logistics and maritime 1,223 1,082 1,142 1,314 15.1
Others 281 385 290 388 33.8
Total capex 5,992 8,550 12,808 10,719 (16.3)
yoy growth (%) 42.7 49.8 (16.3)

Geographical:
Domestic 4,083 5,931 7,630 7,739 1.4
International 1,909 2,619 5,178 2,980 (42.4)
Total capex 5,992 8,550 12,808 10,719 (16.3)

Breakdown of reserves (m barrels of oil equivalent):

Domestic reserves 20,178 20,126 20,178 20,564
yoy growth (%) 1.3 (0.3) 0.3 1.9
Share of int’l reserves 6,312 6,245 6,842 6,560
yoy growth (%) 6.3 (1.1) 9.6 (4.1)
Note: FY09 capex for gas division included acquisition of Gladstone LNG in Australia
Source: Company

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Industry/Sector Ratings

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