PETRONAS FY21 report card
Rising optimism, energy transition in motion
PETRONAS’s improved financials in FY21 are not a surprise; in line with its global peers’ performance. Similarly, it is targeting for a higher capex spend in FY22 (+31%-63% YoY; stronger in 2H). It is also accelerating its energy transition strategy, allocating 20% of its 5-year capex (2022-26) for clean energy solutions, targeting renewables, hydrogen and green mobility markets. Our key BUYs are Yinson, Dialog, Hibiscus and BArmada. Velesto, WSC, MMHE, Favelle and Icon are our SMID BUYs.
FY21: A strong 4Q21 to end FY21
PETRONAS continued to report stronger results this FY, in line with global peers. Core net profit grew 7% QoQ to MYR13b in 4Q21, which took FY21 core earnings to MYR40b (+256% YoY). The QoQ strength reflected the improved market landscape, where oil price trended upwards (+10%) to USD80/bbl; dated Brent and production grew 8%. This fuelled growth at its key divisions: (i) upstream (+19%) and (ii) gas & new energy (+110%), which offset losses at its downstream ops (-MYR5b). Net cash grew 5% to MYR64b in the quarter while its FCF improved 41% to MYR48b (vs. MYR34b in 3Q21). PETRONAS spent a higher MYR10b (+30% QoQ) in capex in 4Q21 but it was lower YoY in FY21 (-9% to MYR31b: 48% upstream, 23% gas & new energy, 16% downstream, 13% corporates & others) due to prolonged MCOs and disruptions in the supply chain.
FY22: Higher capex but higher dividends?
While PETRONAS has committed to a MYR25b dividend payout to the Government in 2022, we do not rule out higher payout, in lieu of the strengthening oil market (Brent surpassing USD100/bbl mark now). For FY22, PETRONAS continues to: (i) uphold a strict capital discipline mantra in an uncertain/ volatile market (Russia-Ukraine crisis, OPEC+ direction) and (ii) is setting a higher capex target of MYR40b-50b (+31-63% YoY). The capex allocation is equal between domestic and international ops. Overall, the stance (higher capex) taken is hardly a surprise, and is in line with most of its global peers’ aspirations. Also, as per its previous statements, PETRONAS targets 50% improvement in cashflows from operations by 2025
and 30% revenue by 2030.
Accelerating energy transition
PETRONAS offers an insight into its 5-year direction. Based on its 2022-26 capex program, PETRONAS will allocate 20% of its capex to pursue growth in non-traditional business, which will focus on cleaner energy solutions while capturing opportunities in the energy transition segment. For this, PETRONAS will: (i) launch a new independent entity by mid-2022 and (ii) set up a centralized carbon management unit, offering carbon solutions in 3 segments, namely: (i) renewables, (ii) hydrogen and (iii) green mobility.
Meanwhile, while it has set a 2050 NZCE strategy, its carbon reduction solutions (i.e. reduction in carbon intensity, 5-10-25 year targets) remains grey, in our opinion, and it lags behind its peers that are more aggressive/ progressive in this area.