PETGAS's 9MFY24 results matched expectations, with core profit falling marginally by 2% to RM1.38b due to higher minority interest. However, a sequential earnings recovery is expected in 4QFY24. Going forth, its regulated assets offer resilient earnings which support a decent dividend yield of 4%. We keep our forecasts, TP of RM17.87 and MARKET PERFORM call.

9MFY24 results in line. At 71%/72% of house/street's FY24 forecasts, PETGAS's 9MFY24 core profit of RM1.38b deems to be within expectations as we expect a sequential earnings recovery in 4QFY24.

It declared a 3rd interim NDPS of 18 sen, (ex-date: 11 Dec; payment date: 24 Dec), bringing YTD NDPS to 50.0 sen, which is the same NDPS declared in 9MFY23.

A flattish YoY results. 9MFY24 revenue inched up slightly by 1% to RM4.92b, led by higher gas processing (+5%) and gas transportation (+5%) which was offset by a lower revenue from utilities segment (- 3%). Nonetheless, its core profit dipped slightly by 2% to RM1.38b due to higher minority interest by 48% or RM27.7m.

Gas processing: The segment's EBIT fell slightly by 1% despite higher revenue, due to higher level of maintenance activities along with inflationary impact.

Gas transportation: The segment's EBIT grew 8% on higher revenue coupled with lower cost of internal gas consumption (IGC), partially offset by higher maintenance and depreciation expenses following higher project completion.

Utilities: Revenue fell 3% due to lower product prices in tandem with reduced fuel gas price and a lower electricity tariff on a downwards revision of ICPT surcharge. However, its EBIT inched up marginally by 1% on lower fuel gas cost as average fuel gas price declined.

RGT: While revenue was flattish, the segment's EBIT fell 3%, due to higher depreciation, maintenance and floating storage units operating leases.

Higher MI affected sequential results. While topline was comparable to the preceding quarter, 3QFY24 core profit declined by 6% to RM441.7m partly due to minority interest which doubled (or RM25.5m)

Forecasts. Maintained.

Valuations. We maintain our SoP-driven TP of RM17.87 (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).

Investment case. 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 c.4%. However, it is already fairly priced at current levels. Maintain MARKET PERFORM.

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

Source: Kenanga Research - 28 Nov 2024