Higher crude oil price secures govt’s fiscal position


THE Malaysian government will get some breathing space in its financial position as the country benefits financially from a recovery in global energy prices this year.

AxiCorp chief global market strategist Stephen Innes said the extra revenue generated from the improved oil and gas (O&G) sector would enable Putrajaya to restore its coffers after providing various stimulus packages to revive the economy.

“The government can use the extra revenue to shore up badly depleted coffers due to the massive fiscal spending they needed to embark on to assist the economy and healthcare concerns as a result of the pandemic,” he told The Malaysian Reserve recently.

After facing its “worst year in decades”, Innes said the energy sector is coming off the difficult ride, but is still faced with challenging times with the move to green energy.

“The much-needed cash streams can be used to shore up current upstream and downstream activities, and provide cashflow towards investing into green energy to ride the wave of China’s green energy initiative,” he added.

AmInvestment Bank Bhd research report recently said crude oil price is expected to range between US$50 and US$55 (RM223.85) per barrel this year.

It will edge higher between US$55 and US$60 per barrel for 2022 on expectation of a global economic recovery by the second half of this year, underpinned by the rollout of Covid-19 vaccine and the continuation of Saudi Arabia’s production quota cut of one million barrels per day.

“This is further supported by US crude oil inventories declining by 12% to 477 million barrels currently from the all-time high of 541 million barrels in June last year,” said its analyst Alex Goh in the note.

The recovery in O&G prices has also reflected positively on O&G service provider companies.

The outfit initiated its coverage of Hibiscus Petroleum Bhd with a ‘Buy’ call at a sum-of-parts based fair value of 79 sen per share, offering a compelling upside potential of 36% to its existing share price of 61 sen.

Based on a lower crude oil price of US$50 per barrel for financial year 2021 forecast (FY21F) versus an average of US$58 per barrel last year, the firm projected the group’s core earnings to decrease by 11% to RM64 million despite an increase in cargo shipments, from 10 to 12 cargo shipments, which are four deliveries in Anasuria and eight in North Sabah.

“For FY22F, we are forecasting a higher crude oil price of US$5 per barrel which supports a core net profit (CNP) growth of 12% to RM71 million, partly offset by a natural decline of 6% in daily net production.

“For FY23F, we are projecting its CNP to rise more sharply by 28% to RM91 million due to the doubling in Anasuria’s daily net production to 6,000 barrels with the commencement of the Teal West field production by the end of 2022,” it said.

Last month, Hibiscus was awarded a 70% interest in Licence P2535 by the UK Oil & Gas Authority. It covers an area contiguous to the Teal field and located 4km from the Teal manifold of the Anasuria cluster.

Maybank Investment Bank Bhd maintained its ‘Buy’ call on Icon Offshore Bhd with a target price of RM0.16 as the contract would be the catalyst to turn the group’s financial situation around.

Hong Leong Investment Bank Bhd analyst Ng Jun Sheng noted in a report last Thursday that the FTSE Bursa Malaysia KLCI (FBM KLCI) had surged 17.4 points to 1,597.9, led by bargain hunting on recovery stocks in the banking, telecommunications and O&G sectors, following positive news on the reopening of all economic sectors despite the extension of Movement Control Order until Feb 18, 2021.

The assurance regarding the first phase of the National Immunisation Plan which is on track, ahead of the arrival of the Pfizer-BioNTech vaccines nationwide on Feb 26, also contributed to the increase in FBM KLCI.


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