R e g i o n a l M o r n i n g N o t e s Thursday, 14 April 2022

SECTOR UPDATE MARKET WEIGHT

Oil & Gas – Malaysia
(Maintained)
Time For Petronas To Gain From LNG Supply Shifts (Russia)
The Ukraine war may force Japan’s hand to substitute Russian gas. Bintulu’s LNG STOCKS WITH GAS PROJECT EXPOSURE
exports should recover following Pegaga’s first gas. Given Malaysia’s long-standing Stock Call, TP Comment
relationship with Japan, it may present a huge opportunity for Petronas if leveraged MISC HOLD, Higher demand for LNG transportation
correctly. Maintenance capex must ramp up to ensure Petronas has the volumes to RM7.15 (though spot exposure is low); may
venture into Floating Storage
meet customer commitments. Maintain MARKET WEIGHT. Rising gas project demand Regasification projects (FSRU).
(for energy security) may benefit the likes of MISC, BAB and MMHE. MMHE HOLD, Higher demand for repair and
RM0.42 refurbishment of LNG vessels
WHAT’S NEW Bumi BUY, The only stock with FSRU exposure
• The Ukraine war elevated the need for gas security. Despite some liquefied natural gas Armada RM0.54 (FSRU for Mumbai Port, 30-year licence
agreement). Our TP exclude the FSRU
(LNG) supply returning to the market, spot LNG prices remain high at >US$40/MMBtu, as the given lack of updates. Capex is likely
impact of sanctioning Russian gas persists. In addition to Europe, media sources last week US$0.5b for capacity of 5MTPA
painted increasing pressures on Japan to substitute Russian gas and coal supply (please see Sapura SELL, SapuraOMV’s gas fields are important
next page). Energy RM0.02 supply to Bintulu’s LNG exports. The
group’s financial condition is a key
• Given the scale, it may be a huge opportunity for Petronas if leveraged correctly. concern
Although flexibility is increasingly being preferred over long-term offtake tenures, Japan Hibiscus NA Increased gas mix to 31%, after Repsol
remains as Malaysia’s largest LNG offtaker, and their 40-year old relationship is almost as old acquisition. High spot LNG prices may
as LNG trade itself. The 30MTPA Bintulu terminal had underdelivered (<80% of capacity) benefit Anasuria, though gas volume is
very small.
throughout 2021, which forced Petronas to exercise cargo deferrals to term offtakers. This Dayang, NA Dayang surprised the market with huge
trend may come to a stop, as the Pegaga field had finally achieved first gas on 21 Mar 22. Petra lump sum works for maintenance
Pegaga’s high mercury content was a key setback to Bintulu’s LNG exports. Energy towards end of 2019
Coastal NA Significant >90% orderbook exposure in
• Petronas (5th largest LNG exporter globally) is long-term bullish on gas. However, it is Contracts Mexico (Pemex) for a few gas onshore
unclear how many Japanese offtakers are considering Malaysia as part of the contingency plants
plan. Firstly, competition remains tight especially from the US, Qatar and Nigeria, all of which Source: UOBKayHian
have massive expansions in place relative to Petronas’. Industry media cited Japanese
offtakers’ unhappiness on the deferral enforcement from Malaysia, when Petronas had been AVERAGE DURATION OF LNG LONG-TERM
profiting from spot portfolios like Petronas Floating LNG (PFLNG). Petronas could have CONTRACTS GETTING SHORTER
considered compensating for the deferred term cargoes as a gesture of goodwill, even if the
Malaysian LNG (MLNG) offtakes were not structured as portfolio contracts (please see next
table).
• Maintenance and production capex need to ramp up, for Petronas to be adequately
prepared for LNG demand. While Pegaga’s startup may be a relief, other production issues
remain, including constant outages of Sabah-Sarawak Gas Pipeline since 2014 (target
resumption: 2H22). Hence, maintenance is increasingly important.
ACTION
• Sector MARKET WEIGHT reflects Petronas’ outlook – while Petronas may benefit from high
LNG prices for 2022, its oil price outlook remains conservative at US$70-80/bbl, vs consensus’ Source: GIINL
US$100/bbl (factoring in geopolitical risk premium). Petronas may also be mindful on capex, of
which 20% mix will be for clean energy/decarbonisation. Still, for Petronas to regain its status
as a responsible global supplier, we think maintenance contracts must be accelerated. This
should improve visibility in 2H22 for maintenance players like Uzma (trading at five-year low),
Deleum, T7Global, Petra Energy and Dayang .
• Top pick: Yinson: BUY/Target: RM2.98 (ex-bonus). We see value in Yinson relative to other
O&G stocks - its share price was weighed down by the RM1.1b rights issue (mid-22
completion), but fundamentals are intact as FPSO Anna Nery is nearing completion. Upgrade
Bumi Armada (BAB) and Uzma from HOLD to BUY on valuation grounds, with unchanged ANALYST(S)
target prices for both. BAB is the only local stock that has a US$0.5b FSRU exposure (please Kong Ho Meng
see RHS table). MISC: HOLD/ Target: RM7.15 is riding on sentiment with rising spot tanker +603 2147 1987
rates, and may also benefit from potential LNG/FSRU projects. homeng@uobkayhian.com
PEER COMPARISON
Share Price Target Market ---------- PE ---------- --------- P/B --------- ---- Interest Cover ---- ---- Net Debt to Equity ---- -------- ROE --------
12 Apr 22 Price Cap 2022F 2023F 2022F 2023F 2022F 2023F 2022F 2023F 2022F 2023F
Company Ticker Rec (RM) (RM) (RMm) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%)
Bumi Armada BAB MK BUY 0.43 0.54 2,540.0 3.9 3.8 0.5 0.5 3.7 4.1 101.6 72.7 14.9 12.9
Dialog Group DLG MK HOLD 2.62 2.95 14,783.5 30.0 27.8 3.3 3.0 23.4 22.6 14.3 17.7 11.5 11.4
Deleum DLUM MK HOLD 0.60 0.55 238.9 7.4 6.8 0.6 0.6 61.7 60.4 n.a n.a 8.7 9.2
MISC MISC MK HOLD 7.65 7.15 34,147.7 22.0 19.7 1.0 1.0 7.7 9.3 35.2 20.9 4.5 5.0
MMHE MMHE MK HOLD 0.39 0.42 624.0 (4.0) (21.5) 0.4 0.4 (3.8) 3.9 n.a n.a n.a n.a
Petronas Dagangan PETD MK HOLD 21.52 18.50 21,379.1 31.9 27.0 3.8 3.8 161 136 n.a n.a 12.0 14.1
Sapura Energy SAPE MK SELL 0.04 0.02 639.2 (1.5) (1.3) (3.1) (0.9) 0.9 0.7 n.a n.a n.a n.a
Uzma UZMA MK BUY 0.45 0.57 158.4 10.8 7.4 0.3 0.3 4.0 4.4 70.3 62.9 2.7 3.8
Velesto Energy VEB MK HOLD 0.11 0.12 903.7 (18.6) (38.6) 0.5 0.5 5.3 8.3 9.7 7.6 n.a n.a
Yinson Holdings YNS MK BUY 2.47 2.98 5,264.9 7.5 4.1 1.1 0.9 3.1 4.7 128.8 122.0 8.7 14.9
Source: Bloomberg

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R e g i o n a l M o r n i n g N o t e s Thursday, 14 April 2022

ESSENTIALS SUPPLIERS’ MARKET SHARE OF LNG (2020)

2020 volume (MTPA) Vs 2019 Global share (%)
• Ukraine war redrawing the global LNG supply chain. The initial impact was greatly felt by Australia 77.77 +3.2 21.8
Europe, which scrambled to secure alternative gas supplies to replace sanctioned Russian Qatar 77.13 -0.9 21.7
LNG. The 2nd largest global LNG importer, Japan initially resisted the sanctions, given the United States 44.76 +32.6% 12.6
essential role of 10MTPA Shakhalin-2 LNG Russian project for its energy security. About Russia (to Asia) 25.01 +0.8 3.2
Russia (to EU) 18.35 +1.1 5.2
6.5MTPA of Shakhalin LNG are committed to Japanese long-term offtakers (seven years left Malaysia 23.85 -9.0 6.7
on average), representing 9% of the country’s LNG imports (3% of electricity generation). Nigeria 20.55 -1.4 5.8
Last week, media sources reported pressures had prompted Japan to call for contingency Indonesia 14.99 -3.1 4.2
plans to substitute Shakalin-2 LNG, as well as Russian coal (about 12% of Japan’s total Algeria 10.58 -13.5 3.0
imports). Phasing out some coal supply may also lead to more LNG needs. Trinidad Tobago 10.08 -19.3 2.8
Oman 9.76 -4.9 2.7
• The opportunity to replace Shakhalin LNG is huge, as we note this volume is similar in Papua N Guinea 8.33 +1.2 2.3
Brunei 6.22 -2.9 1.7
size to the offtake volumes contracted to the Japanese (7MPTA) from three MLNG trains in
Source: GIINL
the Bintulu terminal (data excludes Train 9). However, competition remains. US LNG exports
surged materially in recent years. The US/Canada has potentially up to >300MTPA of new TOP 5 LNG EXPORTERS (2021, IN BCM)
capacities, albeit impacted by COVID-19 delays and many may not be sanctioned. Still,
many potential US projects are viable as they are driven by modular construction of small-
scale LNG trains that offer flexibility and competitiveness in securing offtakes. Qatar, the
biggest LNG exporter globally, had been very aggressive in establishing new relations and
offtakes, given its massive expansion plans from 77MTPA today to 110MTPA by 2025.
• Nigeria is another rising star, with 8MTPA new capacities sanctioned (26MTPA more in
proposal stage). Likely in our view, Nigeria’s market share may exceed Malaysia, which does
not have major new expansion, but critically needs to beef up its LNG exports that are well
below utilisation. Malaysia is relying on commercialising new gas fields – mainly Pegaga,
Kasawari (2023 startup), Jerun, and Lang Lebah, to backfill the LNG terminal. Similarly,
Australia’s new investments (representing up to 50MTPA) are mainly backfill projects to Source: Platts
offset declining production, rather than building new capacities, but Australia’s existing
capacity of 90MTPA is already 3x that of Malaysia.
SNAPSHOT OF SOME LNG OFFTAKE CONTRACTS IN FORCE OR NEWLY SIGNED SINCE 2020
Nominal Nominal
Export Volume End Export Volume End
Country Seller Buyer (MTPA) Start date date Country Seller Buyer (MTPA) Start date date
MLNG Hokkaido Electric Power 0.13 2018 2028 Sakhalin 2 CPC 0.75 2017 2022
MLNG Hokuriku Electric 0.40 2018 2028 Sakhalin 2 Gazprom Global LNG 1.00 2009 2028
MLNG Osaka Gas 0.80 2009 2023 Sakhalin 2 Hiroshima Gas 0.21 2008 2028
MLNG Tokyo Gas 0.5 to 0.9 2018 2031 Sakhalin 2 JERA 1.50 2009 2029
MLNG Dua CPC, Taiwan 2.00 2015 2020 Russia – Sakhalin 2 JERA 0.50 2011 2026
Prigorod-
MLNG Dua ENEOS Corporation 0.38 2015 2025 Sakhalin 2 KOGAS 1.50 2008 2028
noye
MLNG Dua Gas Bureau, Sendai 0.16 2018 2027 Sakhalin 2 Kyushu Electric 0.50 2029 2031
Malaysia – MLNG Dua JERA 0.40 2011 2031
(Long-term
Sakhalin 2 Osaka Gas 0.20 2008 2031
Bintulu MLNG Dua Shizuoka Gas 0.33 2016 2025 contracts) Sakhalin 2 Saibu Gas 0.065 2014 2027
MLNG Dua Tohoku Electric 0.37 2016 2026 Sakhalin 2 Shell 1.00 2009 2028
(Long-term MLNG Satu Hiroshima Gas 0.10 2016 2031 Sakhalin 2 Toho Gas 0.50 2009 2033
contracts) MLNG Satu Saibu Gas 0.45 2014 2028 Sakhalin 2 Tohoku Electric 0.42 2010 2030
MLNG Satu Shikoku Electric 0.36 2010 2025 Sakhalin 2 Tokyo Gas 1.10 2009 2031
MLNG Tiga CNOOC, China 3.00 2009 2029 Total LNG offtakes by Japan : 6.5MTPA Average tenure: 18 years; 7 left
MLNG Tiga Japex 0.48 2002 2021 Nigeria – LNG T1-3 ENI 1.50 2021 2031
MLNG Tiga KOGAS, Korea 2.00 2008 2028 Bonny LNG T1-3 Galp Trading 1.00 2021 2031
MLNG Tiga Osaka+ Toho +Tokyo Gas 0.80 2004 2024 Island LNG T1-3 Total 1.50 2021 2031
MLNG Tiga Toho Gas 0.40 2007 2027 LNG T7 ENI 1.10 NA NA
MLNG Tiga Tohoku Electric 0.50 2005 2025 (Long term LNG T6 Shell 3.10 2008 2027
LNG offtakes by Japan (excluding Train 9): 7MTPA Average tenure: 14 years; 4 left contracts) LNG T4-5 Shell 3.33 2006 2026
Heads of Agreement with 1.50 2022 2034 United Cheniere Heads of Agreement with 0.34 2.21 2026
Shenergy (China) States, US Portfolio Foran Energy (China)
Petronas Petronas JOVO 0.50 2016 2023 Cheniere EDF 0.77 2020 2040
Portfolio, US –
KOMIPO 0.24 2020 2025 Cheniere Endesa 2.25 2019 2039
(Portfolio which may Corpus
PTT 1.20 2017 2032 Cheniere Naturgy Energy 1.50 2020 2040
contracts) include MLNG Christi
S-Oil 0.70 2018 233 Cheniere Pavilion Energy 0.80 2019 2040
Toho Gas 0.54 2017 2027 Cheniere Pertamina 0.76 2020 2040
(Long term
Qatar – Ras RasGas III T2 Petrobangla 2.50 2018 2033 contracts) Cheniere Pertamina 0.76 2019 2039
Laffan Qatargas II T1 PetroChina 3.40 2018 2040 Cheniere Woodside 0.85 2020 2040
Qatargas III PGNiG 0.90 2018 2034 Australia Santos Diamond Gas 1.50 NA 10-years
(Long Term Qatargas IV OMV 1.10 2019 2024 Qatar QatarGas Sinopec, China 2.00 2022 2032
contracts) Qatargas IV Shell 1.10 2019 2023 Darwin Ichthys JERA 2.31 2018 2032
Qatar Qatar Petrol Pavilion Energy 1.80 2023 2032 Qatar Qatar Petrol Kuwait Petroleum 3.00 2022 2037
Source: GIINL, UOBKayHian

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R e g i o n a l M o r n i n g N o t e s Thursday, 14 April 2022

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