KUALA LUMPUR: Petroliam Nasional Bhd's (Petronas) capital expenditure (capex) is projected to increase to the RM40 billion-RM45 billion level annually over the next five years (2022-2027) to take advantage of the current soaring oil prices.

With the current crude oil price above US$100 per barrel, this would, in turn, benefit the entire oil and gas (O&G) value chain in Malaysia, Hong Leong Investment Bank Bhd (HLIB Research) said in a note today.

"Petronas' fourth quarter (Q4) 2021 capex stood at RM10.1 billion, in line with its better quarterly operating cash flow of RM24.1 billion.

"We deem Petronas financial year ended December 31, 2021 (FY21) capex of RM30.5 billion to be below our expectations at 87 per cent of our full-year capex forecast of RM35 billion.

"Petronas also aims to increase domestic spending to 55 per cent of capex (RM22 billion-RM25 billion) and the remaining

would be for international programmes.

"We think that indicated capex levels should be sufficient to help the sector recover in 2022, albeit still lower than its pre-pandemic 2018-2019 levels," HLIB Research said in a note today.

On Tuesday, Petronas announced plans to invest between RM40 billion and RM50 capex in the financial year ending December 31, 2022 (FY22) on the back of higher oil prices.

Touching on the oil price forecast, HLIB Research raise its Brent crude oil price per barrel forecast to US$85-US$90 from US$70-US$75 previously for 2022.

Brent oil price has surged past the US$100 per barrel, an increase of 50 per cent since December 2021 when the Russia-Ukraine conflict started to build up.

According to the US Energy Information Administration (EIA), Russia is the third-largest oil producer globally at 10.5 million barrels per day (BPD) or 11.2 per cent of global output in 2020.

As such, if sanctions were to eventually encompass Russian oil, this could increase prices due to the anticipated supply crunch in the global oil markets, HLIB Research noted.

The bank-backed research firm maintains Overweight on the O&G sector with top picks for the sector are Dagang NeXchange Bhd (Buy call with a target price of RM1.64) as it stands to be a direct beneficiary of the soaring oil prices from their Anasuria oil-producing assets and strong ASP growth from Silterra.

Secondly, Bumi Armada Bhd (Buy call with a target price of RM0.84) given its foothold in the floating production storage and offloading (FPSO) business which provides steady recurring income, coupled with speedy enhancement in its debt profile.

Lastly, Dialog Group Bhd (Buy call with a target price of RM3.32) for its recurring income type of business model and HLIB Research deem it one of the only listed secular growth stocks in the local O&G space.

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