Petronas faces a potential profit squeeze with Sarawak's gas aggregator shift and capex uncertainties according to reports by CGS International Stock Broking House (CGS).

Sarawak's state oil company, Petros, is set to replace Petronas as the sole gas aggregator for Sarawak-origin gas resources from 1 October 2024. This change, coupled with Sarawak's firm deadline, is likely to impact Petronas's profit margins and could lead to reductions in its capital expenditure (capex), affecting upstream activities and related sectors. CGS highlights that this transition may squeeze Petronas's operating cash flows and impact companies like Velesto and Petronas Chemicals Group (PCG), while Dayang could be more resilient due to its maintenance services.

CGS maintains a Neutral stance on the sector due to the uncertainties surrounding Petronas's future capex spending. Dialog Group (DLG MK) and Dayang are identified as top picks in this volatile environment, with Dialog's expansion and Dayang's maintenance services expected to be more stable in the face of sector changes.

Petronas's reduced profitability from the loss of its gas aggregator role might prompt a shift in its spending priorities, potentially impacting the demand for drilling and offshore support services. The anticipated margin squeeze could lead to lower domestic demand for Velesto's rigs and possible adjustments to gas feedstock pricing for PCG's Bintulu urea plant.