This article first appeared in The Edge Financial Daily on November 1, 2018

Petronas Gas Bhd
(Oct 31, RM18.28)
Maintain hold with an unchanged target price (TP) of RM18.10: Last week, Petronas Gas Bhd (PetGas) organised a site visit for sell/buy-side analysts and fund managers to its liquefied natural gas (LNG) Regasification Terminal Pengerang (RGTP) in Johor. We were accompanied by PetGas managing director/chief executive officer Kamal Bahrin Ahmad, chief financial officer Shariza Sharis M Yusof and head of investor relations Izan Hajar Ishak. RGTP is owned by Pengerang LNG (Two) Sdn Bhd, where PetGas is the major shareholder with a 65% stake.

RGTP supplies gas to the Pengerang Cogeneration Plant (PCP), Pengerang Integrated Complex (PIC) and Peninsular Gas Utilisation (PGU). RGTP is PetGas’ second LNG regasification plant and has 490 million standard cubic feet per day (mmscfd) capacity while its first LNG regasification terminal is located in Sungai Udang, Melaka, with a capacity of 530mmscfd. RGTP is one of the associated facilities that provide gas to the PCP, PIC and PGU.

RGTP started its commercial operation on Nov 1, 2017 upon the completion of the regasification terminal, LNG jetty topside and first LNG storage tank. It achieved full commercial operation upon completion of the second LNG storage tank in April 2018. Since commissioning, RGTP has stored and regasified 19 LNG cargoes, with plant performance of 100% overall equipment effectiveness. We expect this new RGTP to contribute additional 8% to 10% per annum to PetGas’ bottom line starting 2018.

Our TP is unchanged at RM18.10, based on 17.8 times calendar year 2019 forecast (CY19F) price-earnings ratio (PER), a 20% discount to its five-year historical mean PER. The 20% discount is the mid-point of the earnings downside in our best- and worst-case scenarios for the implementation of third party access (TPA). We keep our “hold” call despite the potential financial year 2018 forecast (FY18F) to FY20F dividend yield of 4% as we see earnings risk beyond FY18F arising from TPA’s tariff revision. We expect the new tariffs under TPA to be revealed at end-November 2018.

The key downside risk to our “hold” call is worse-than-expected earnings in FY19F, while key upside risks include better-than-expected regulatory earnings allowed under TPA and a flight to safety by investors due to rising market volatility from increasing economic uncertainty. — CGSCIMB Research, Oct 30