Petronas Gas Bhd
(Nov 5, RM21.80)
Maintain market “perform” with a revised target price (TP) of RM21.24/sum-of-parts (SoP): The nine months of financial year 2014 (9MFY14) earnings came in slightly below our expectations as the 9MFY14 net profit of RM1.27 billion made up 71% of our FY14 full-year estimates and 74% that of market consensus.
The main discrepancies between our estimates and actual results were: i) the absence of Kiminas independent power plant (IPP)’s earnings which already started operations in end-second quarter of 2014 (2Q14); and ii) overestimating of gas processing earnings by us.
A 20 sen net dividend per share (NDPS) was declared in 3QFY14, (ex-date: Oct 18, 2014; payment date: Dec 8, 2014), bringing 9MFY14 NDPS to 40 sen which was higher than the 15 sen paid in 9MFY13.
Despite revenue growing 2%, 3QFY14 net profit fell 4% quarter-on-quarter to RM418.6 million from RM435.3 million, mainly driven by lower gas transportation, utilities and regasification terminal (RGT) earnings where the segmental profit before tax (PBT) declined by 4%, 19% and 11% respectively.
This was partly due to higher cost of revenue and other operation expenditure. On the other hand, gas processing earnings were fairly flattish, which grew slightly by 1% as revenue grew 1% as well.
Year-on-year, 3QFY14 net earnings rose 10% as revenue grew proportionally. This was mainly attributed to the new Gas Processing Agreement and Gas Transportation Agreement (GTA) that took effect in April 2014, which drove the earnings of gas processing and gas transportation units higher.
In addition, the utilities segment also reported higher earnings thanks to higher off-take by customers. However, RGT posted lower earnings on lower revenue coupled with higher depreciation charges.
Year-to-date, 9MFY14 core earnings jumped 16% from RM1.09 billion in 9MFY13, mainly due to RGT as the terminal was only started at end-2Q13. While the gas transportation unit benefited from the GTA, earnings of gas processing declined due to higher depreciation on plant rejuvenation and revamp programme.
Petronas Gas’ FY14 earnings are expected to reach a new high, mainly propelled by the full-year contribution from the Melaka RGT and the start of Kimanis IPP at end-2Q14.
Although there is still no progress on the Lahad Datu RGT, the Melaka RGT and IPP mentioned above together with the Refinery and Petrochemicals Integrated Development (Rapid) RGT in Pengerang would be the next earnings catalysts for Petronas Gas.
We have cut FY14 to FY16 forecasts slightly by 1% to 2% on: i) Kimanis’ IPP earnings to start in 4Q14; and ii) fine-tuning other segments’ assumptions.
Post-earnings revision, our new TP is now RM21.24/(SoP) from RM21.54/SoP share previously.
Risk includes the delay in the commencement of Lahad Datu RGT. — Kenanga Research, Nov 5
This article first appeared in The Edge Financial Daily, on November 6, 2014.