Investment Highlights

• We maintain BUY on Petronas Gas (PGas) with an unchanged sum-of-parts-based (SOP) fair value (FV) of RM19.97/share, which implies a FY24F PE of 21.5x, close to 1 std dev above its 5-year average . This also reflects a 3% premium for our unchanged ESG rating of 4 stars , premised on Petronas’ strategy to achieve net zero carbon emissions by 2050F.

• Similarly, we maintain our earnings forecast for FY24F- FY26F pending an analyst briefing to be held today.

• PGas’ FY23 core net profit of RM1.8bil, excluding unrealised forex gains, came in broadly within estimates, slightly above our forecast by 1.5% and street’s by 2.4%.

• The group declared a fourth interim dividend per share (DPS) of 22 sen, bringing FY23 DPS to 72 sen. This translates to a payout ratio of 78%. We set our DPS expectations at current levels moving forward as the company remains committed to providing a stable payout to shareholders.

• YoY, PGas’ FY23 revenue growth of 4.6% was driven by 18% growth in the utilities segment as a result of:
  
  (i) higher product prices in tandem with elevated fuel gas price; and
  
  (ii) higher electricity tariff with the upward revision of imbalance cost pass through surcharge, while other segments remain flattish.

• FY23 CNP rose by a wider 7.5% YoY on the back of stronger contribution from joint ventures, lower financing costs and lower impact from unfavourable foreign exchange movement following early settlement of a USD lease liability for the LNG regasification terminal in Sg. Udang, Melaka. Additionally, tax expenses also declined by 5% YoY as 2022 experienced the imposition of Prosperity Tax.

• QoQ, 4QFY23 revenue growth was rather flattish for the group at 2.1% as most segments remain resilient with close to 100% reliability. Notably, the utilities segment lifted results again as a result of higher product sales volume from stronger demand.

• However, 4QFY23 CNP saw a sequential decline of 10% due to a decline in EBITDA margins by 2.6%-points to 51% as the group experienced higher operating expenses mainly from increased maintenance expenses in tandem with elevated activity levels.

• We remain optimistic on the group’s near-term outlook, underpinned by resilient earnings from regulated segments (gas transportation and regasification) with guaranteed income coupled with imminent growth in non-regulated gas processing and utilities segments secured by long-term contracts and resilient demand from customers.

• The stock currently trades at FY24F PE of 19.3x, still below the pre-FY20 peak of over 20x. This is supported by dividend yields of 4-5% which could potentially be even higher if the group’s capital structure was further optimised from the current net cash position to the levels of utilities companies. 

Source: AmInvest Research - 28 Feb 2024