PETGAS’s 9MFY23 results met expectations. Its 9MFY23 core profit rose 5% YoY on lower input cost as fuel gas price softened while its utilities segment benefited from the hike in Imbalance Cost Pass-Through (ICPT) surcharge. We maintain our forecasts, TP of RM17.45 and MARKET PERFORM call. The stock offers a dividend yield of >4%.

PETGAS’s 9MFY23 core profit of RM1.41b met expectations at 74% and 75% of our full-year forecast and the full-year consensus estimate, respectively. It declared a third interim NDPS of 18.0 sen (ex-date: 04 Dec; payment date: 15 Dec), totalling 9MFY23 NDPS to 50.0 sen which is the same payout in 9MFY22.

YoY, its 9MFY23 revenue rose 5%, driven mainly by the utilities segment (+29%) while top line performances from gas processing (+2%), gas transportation (-2%) and regasification (RGT, -4%) were flattish to slightly negative. However, its EBIT was flat (-1%) as the doubling in utilities profit was offset by earnings decline at other divisions. Its core net profit grew 5% thanks to a lower effective tax rate.

Gas processing: The segment’s EBIT fell by 10% on a 2% hike in top line due to higher depreciation.

Gas transportation: The segment’s EBIT contracted 18% on a 1% decline in top line due to on higher internal gas consumption.

Utilities: The segment’s top line grew 29% on higher product prices for steam and industrial gases, in line with higher fuel gas price, coupled with higher electricity tariff (20.0 sen ICPT surcharge in 1HFY23 and 17.0 sen ICPT surcharge in 2HFY23) Meanwhile, its EBIT jumped 119% boosted by low input cost, i.e., gas, and the more favourable terms of renewed contracts with customers which allow a more balanced cost pass-through and reduce the business exposure to gas price volatility.

RGT: The segment’s EBIT fell 11% on a 4% drop in top line due to lower RP2 tariff for Pengerang RGT coupled with higher opex on depreciation.

QoQ, its 3QFY23 revenue fell 5% to RM1.55b largely due to lower revenue contribution from utilities segment (-15%) on the back of lower product prices as well as lower industrial gases sales volume which was due to the planned plant turnaround in Kertih facility. The lower product prices were due to lower fuel gas price and the lower ICPT surcharge for 2HFY23 (17.0 sen vs. 20.0 sen) mentioned above. As a result of weaker revenue, core profit fell by 5% to RM481.2m, partially offset by lower interest expense (-36%) following early settlement of USD lease liabilities for floating storage units at Melaka RGT.

Forecasts. Maintained.

We continue to like PETGAS for its earnings stability of which >90% is safeguarded by the IBR framework, and the RP2 has reinforced its earnings stability anchoring a decent dividend yield of >4%. However, its valuation is already rich at current levels. We maintain our SoPdriven TP of RM17.45 (see Page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5). Maintain MARKET PERFORM.

Risks to our recommendation include: (i) regulatory risk, and (ii) a global recession hurting demand for power, steam and industrial gases.

Source: Kenanga Research - 21 Nov 2023