BERHAD: Strong Offtake Volumes Drive Earnings Beat, Target Price Raised

A prominent energy company reported a robust financial performance for its second quarter of fiscal year 2026 (2QFY26), with core net profit soaring to RM86.0 million. This represents a nearly five-fold increase from the RM14.6 million recorded in the preceding quarter (1QFY26). Year-on-year, earnings saw a marginal increase of 1.4%, bolstered by higher tax credits from its UK Anasuria operations. However, the cumulative first-half core net profit of RM100.5 million fell below both the investment bank’s and consensus full-year forecasts, primarily due to production disruptions at the UK Anasuria asset earlier in the fiscal year.

Performance Review

The significant sequential improvement in 2QFY26 was primarily attributed to a substantial 32.4% increase in oil and gas offtake volumes. This resurgence follows the resumption of scheduled crude liftings after major maintenance activities in 1QFY26. Management confirmed that operations at the UK Cook field were restored in December 2025 after a hydrocarbon leakage incident in October 2025. With all producing assets now stable, the company anticipates no major operational interruptions in the second half of FY26 (2HFY26), expecting offtake volumes to normalize around 1,200 Mbbl per quarter.

Despite the strong quarterly rebound, the investment bank has revised its FY26-FY28F earnings forecasts downwards by 29-58%. This adjustment reflects lower base production assumptions due to the natural decline of mature fields. To maintain a conservative stance, the forecasts also explicitly exclude contributions from the Teal West project and any new infill drilling.

Operational Highlights and Challenges

During 2QFY26, oil offtake volume surged to 1,312 Mbbl, marking a 45.2% quarter-on-quarter increase and a 3.8% year-on-year decline. This was supported by two liftings from North Sabah and PM3 CAA, and one from Brunei.
The Anasuria asset in the UK recorded a materially lower uptime of 28% in 2QFY26. This vulnerability stems from its Floating Production Storage and Offloading (FPSO)-based configuration, which creates a single-point dependency, leading to full-field shutdowns during any FPSO downtime. In contrast, the company’s Malaysian assets benefit from production being spread across multiple platforms, allowing for partial operations during maintenance.

Future Outlook

Beyond the normalized offtake volumes in 2HFY26, incremental upside is expected from several key projects. These include the Brunei Low Pressure Compressor (LPC) project, slated to commence in May, and the first oil from the UK Teal West project, targeted for mid-CY2026. The Teal West tie-in is expected to boost production while leveraging existing infrastructure, leading to high-margin barrels and a reduction in operating expenditures per barrel of oil equivalent (OPEX/boe). While elevated oil prices due to geopolitical tensions offer near-term support, the investment bank considers this temporary and maintains conservative Brent assumptions.

Recommendation

Despite the earnings revisions, the investment bank maintains an Outperform call on the stock, raising its target price to RM2.40 from RM2.30. This decision is primarily driven by a lower net debt position and a stronger balance sheet, which enhances the company’s equity value under a Discounted Cash Flow (DCF) framework, partially offsetting the adjusted production outlook.