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Fundamental View
AS OF 17 Sep 2024Petronas’ FY23 and 1H24 credit metrics remained resilient even as EBITDA fell as we had expected.
Despite the modestly lower YoY outlook for O&G price realizations in 2H24, we expect Petronas’ credit profile to remain resilient in FY24 and maintain its net cash position, aided by resilient domestic demand and still-positive FCFs.
We take comfort in Petronas’ strong support from the Government of Malaysia, given it is strategically vested with Malaysia’s entire oil & gas resources and provides a substantial source of government income.
Sizable O&G and renewable capex and high dividend payouts could restrain improvements in Petronas’ credit metrics and free cash flows.
Business Description
AS OF 17 Sep 2024- Petronas is an integrated oil and gas company, wholly owned and controlled by the Government of Malaysia.
- Its activities span the entire up/mid/downstream value chain both domestically and internationally. Key products and services provided include the sale and marketing of petroleum products, crude oil and condensates, LNG, natural and processed gas, petrochemicals, shipping services, property development and automotive engineering.
- Petronas carries out its exploration, development and production activities via production sharing contracts (“PSCs”), mostly with international O&G companies and Petronas' wholly-owned subsidiaries.
- Its Downstream segment is aimed at refining, supplying, trading, manufacturing and marketing of crude oil, petroleum products, and petrochemical products. Its key projects and factories include Pengerang Integrated Complex (PIC), Sabah Ammonia Urea in Sabah, and Integrated Aroma Ingredients Complex in Gebeng, Kuantan.
- Its Gas and New Energy division was set up in FY19 and groups all of Petronas' LNG, gas and renewable revenues into a single segment. Activities within this division include production of LNG, processing and transportation of gas and solar power production.
- Its 6 listed subsidiaries include MISC Berhad (57.56%), KLCC Property (75.46%), Petronas Chemicals Group Berhad (64.35%), Petronas Gas Berhad (51%), Petronas Dagangan Berhad (63.94%), and Bintulu Port Holdings Berhad (28.52%).
Risk & Catalysts
AS OF 17 Sep 2024Broad growth slowdown concerns could hamper sales of Petronas’ Downstream (petroleum products) and Gas & New Energy (LNG and natural gas) segments.
Prolonged periods of low crude oil prices could harm upstream O&G EBITDA (which typically contributes 50%-70% of total profit after tax), albeit mitigated partly by stronger downstream O&G EBITDA.
Sizable capex on domestic O&G and renewable energy ventures could restrain improvements in Petronas’ credit metrics and free cash flows.
Petronas is regularly required to pay dividends to the Government of Malaysia, which may weigh on its cash flows.
We remain watchful of how the dispute between Petronas and Sarawak state government unfolds, its impact on Petronas’ financials and its market position in the Malaysian O&G sector.
Key Metric
AS OF 17 Sep 2024| MYR mn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 21.1% | 18.4% | 18.2% | 19.1% | 18.6% |
| Net Debt to Book Cap | n/m | n/m | n/m | n/m | n/m |
| Debt/Total Equity | 26.7% | 22.6% | 22.2% | 23.6% | 22.8% |
| Debt/Total Assets | 17.0% | 14.7% | 14.4% | 14.9% | 14.3% |
| Gross Leverage | 1.1x | 0.6x | 0.8x | 0.7x | 0.8x |
| Net Leverage | n/m | n/m | n/m | n/m | n/m |
| Interest Coverage | 20.9x | 33.9x | 24.9x | 31.2x | 25.5x |
| EBITDA Margin | 45.2% | 50.7% | 44.8% | 46.0% | 44.1% |
CreditSight View Comment
AS OF 17 Sep 2024We have a Market perform recommendation on Petronas. We see current spread differential of Petronas’ bonds against Pertamina’s bonds as fair. We think Petronas’ larger EBITDA, net cash position vs. Pertamina’s net leverage position and more regular/transparent financial reporting negates Indonesia’s relatively stronger FY24E GDP growth. The Petronas vs. Sarawak state dispute is an evolving issue, and we remain watchful of any major adverse outcome to revisit our recommendation. Despite the modestly lower YoY outlook for O&G price realizations in 2H24, we expect Petronas’ credit profile to remain resilient in FY24 and maintain its net cash position, aided by resilient domestic demand and still-positive FCFs. We also like its strong state-linkage to the Malaysian government.
Recommendation Reviewed: September 17, 2024
Recommendation Changed: September 07, 2020
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