AmResearch 'overweight' on oil, gas sector

by **hlk** Mon 18 Jul 2011, 15:01

Petronas Gas Bhd is likely to be a beneficiary of the evolving energy landscape towards natural gas, says Amresearch.

This will be supported by favourable news flow from several events such as heightened global concerns over nuclear power following Japan's Fukushima Daiichi nuclear meltdown, rising coal costs and the aborted attempts to revive the 1,600MW Bakun undersea cable project, which would likely turn intention back to gas-fired power plants, AmResearch in a research note today.

It also said that the government’s strategy to gradually remove natural gas subsidies by 2015, will lead to a more viable pricing mechanism for electricity generation.

AmResearch said ongoing projects such as the group’s 60per cent-owned 300MW Kimanis gas-fired power plant expected to be completed by end-2013, and investment opportunities in the RM60 billion Refinery and Petrochemical Integrated Development in Pengerang, Johor, could ensure higher earnings for Petronas Gas.

Meanwhile, for the oil and gas sector, AmResearch remained convinced that domestic capital expenditure spending will accelerate, boosted by Petronas’ RM300 billion programme over the next five years.

This includes the development of 27 marginal fields and enhanced oil recovery projects.

It said the government’s Economic Transformation Programme also catalyses excitement in merger and acquisition news flow in the sector, with the push to create an oil field services hub in the country and consolidation of local operators into regional champions.

"Recent examples are the proposed Kencana-SapuraCrest merger and acquisition of Sime Darby’s fabrication yards by Marine & Heavy Engineering Holdings (MMHE) and its parent, Petronas," it added.

AmResearch has maintained a "buy" call on Petronas Gas with a higher sum-of-parts fair value of RM15.30 against RM13.60 previously.

It also maintained an "overweight" view on the oil and gas sector with the top pick being MMHE while among other "buy" recommendations are SapuraCrest Petroleum Bhd, Kencana Petroleum Bhd and Wah Seong Group. -- Bernama