Thursday 28 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on December 24, 2019

Petronas Gas Bhd
(Dec 23, RM17.70)
Maintain neutral with a higher target price of RM17.62:
Petronas Gas Bhd (PetGas) announced that it had received a letter via the Energy Commission (EC) dated Dec 19, 2019 from the government. The letter stated the approval of new tariffs for the Regulatory Period 1 (RP1) for PetGas facilities, including tariffs for the Peninsular Gas Utilisation (PGU), Regasification Terminal Sungai Udang (RGTSU) and Regasification Terminal Pengerang, Johor (RGTP). The new tariffs for RP1 commence on Jan 1, 2020 and end on Dec 31, 2022.

We initially anticipated a slightly reduced tariff, or at best a status-quo tariff for the RP1 for all PetGas facilities. However, compared with the current tariffs for the incentive-based regulation (IBR) pilot period, the tariffs for PGU and RGTP increased for the RP1. Only the RGTSU’s tariff was lowered slightly to RM3.455 per gigajoule (GJ) from RM3.518 per GJ currently. That said, we are upbeat about the announcement as we opine the RP1 will help lift PetGas’ earnings.

For the gas transportation segment, the tariff was increased to RM1.129 from RM1.072 per GJ currently under the IBR-based framework. For the first nine months of financial year 2019 (9MFY19), the PGU system contributed to about 21% and 34% of PetGas’ revenue and profit respectively. Assuming the volume remains the same, we estimate this will increase the segment’s revenue by 4% to 5% for the financial year ending Dec 31, 2020 (FY20) and FY21 respectively.

With the revised tariffs for RGTSU and RGTP, the regasification segment will also be impacted. For 9MFY19, the regasification segment contributed to 23% and 26% of PetGas’ total revenue and profit. With the RGTSU’s tariff lowered to RM3.455 per GJ and the RGTP’s tariff increased to RM3.485 per GJ, we estimate the segment’s revenue to increase to 7.6% to 8% for FY20 and FY21 respectively.

Our FY20 and FY21 earnings forecasts are revised upwards by 8.4% and 9.3% respectively as we input the new tariffs in our earnings calculations following the RP1 tariffs’ announcement. Following this, we are more favourable about PetGas due to the better tariffs and improved earnings visibility.

We opine that coupled with the second Gas Processing Agreement entered into earlier this year with its parent Petroliam Nasional Bhd, and PetGas providing ancillary services in the near future, the new tariffs for RP1 are expected to help lift PetGas’ earnings, initially plagued by uncertainties due to the newly implemented IBR framework earlier this year.

Our valuation is premised on an unchanged forward FY20 price-earnings ratio of 17.7 times pegged at FY20 earnings per share of 99.6 sen. Our call on PetGas is maintained primarily due to the recent appreciation of its share price limiting the share price appreciation going forward.

Further, due to the two regulated business segments, a further earnings growth for the group is seen fairly limited for now and its earnings growth going forward will highly depend on how much it can monetise its ancillary business, currently making up less than 10% of its total revenue. — MIDF Research, Dec 23

      Print
      Text Size
      Share