Not So RAPID
PETRONAS to delay RAPID project to 2018 Reuters reports that PETRONAS expects to push back the commissioning of its USD20b refinery and petrochemical integrated development (RAPID) project in Johor by nine months to Jan 2018. According to an earlier statement by PETRONAS, the project was to commence operations by Mar 2017 which in itself was already a delay, given that the RAPID project was originally scheduled to kick off in Mar 2016. In reviewing our portfolio, Dialog and MMHE have reached our target prices and as such, we are downgrading both stocks from Buy to HOLD. Our top BUYs in the O&G sector and for which we see repricing catalysts are SAKP, Bumi Armada and Perisai.
Reasons for the delay. PETRONAS said earlier that the hiccup was due to infrastructure obstacles and the relocation of villages and cemeteries in the area (measuring 2,000ha) surrounding Pengerang. The project is also said to be complicated by a need to secure water supplies, as well as to cater to the needs of international partners.
FID on RAPID may not meet its Apr 2014 timeline. With these issues, PETRONAS will also be hard-pressed to meet the Apr 2014 deadline for its final investment decision (FID) on the RAPID project. We gather that it is still undecided on the design of the facilities there, particularly the specifications of the refinery and petrochemical plants. The project involves the processing of low -grade heavy, sour crude crude oil from the Middle East (i.e. Iraq).
Companies with potential exposure to the RAPID project. While a 9-month delay for a massive project is not a major concern, this newsflow will generate some negative sentiment. O&G companies that are potentially leveraged to this project are: (i) Dialog (tank terminal operations, regasification plant), (ii) KNM, MMHE, Muhibbah Engineering, SAKP (onshore fabrication works and process equipment), (iii) Gas Malaysia and Petronas Gas (natural gas transmission, additional volume) and (iv) Petronas Chemicals (petrochemicals).
above: Valuation Table (click to enlarge)
Stock calls reassessed. We have downgraded Dialog and MMHE to HOLDs now, primarily for valuation reasons. The former now trades close to our MYR3.05 TP while the latter has surpassed our MYR4.20 TP. Both stocks have performed well. Dialog has surged by 25% YTD while MMHE’s share price has risen by 27% in the three weeks since we upgraded it to a BUY on 9 Jul 2013.
Stock picks. While we continue to Overweight the sector, we are more selective on our stock picks now following good share price performances overall. We continue to favour Perisai, which could re-rate ahead of the listing of another O&G company with a similar business model in 4Q13. SAKP will benefit from potentially strong offshore fabrication job flows, which are scheduled to be awarded from 4Q13 and into 2014. Bumi Armada should re-rate once it bags the multi-billion dollar Kraken FPSO job.
by Maybank IB
