Review

• Petronas Gas Berhad’s (PETGAS) 9MFY23 core profit of RM1.4bn (+6.4% YoY) came in within expectations at 72% and 76% of ours and consensus’ full-year forecasts respectively.

• PETGAS declared a third interim dividend of 18.0sen/share in 3QFY23 (3QFY22: 18.0sen/share), bringing the YTD DPS to 50.0sen (9MFY22: 50.0sen).

• 9MFY23: 9MFY23 revenue advanced 7.4% YoY due to higher product prices from Utilities segment. However, gross profit decreased 5.3% YoY on the back of higher operating expenses in Gas Processing (depreciation), Gas Transportation (higher fuel gas price) and Regasification (depreciation) segments. PBT grew 2.0% YoY despite lower gross profit due to: i) lower exposure from foreign exchange movement and lower finance cost following early settlement of USD lease liability of floating storage units at Sungai Udang LNG regasification terminal; and ii) higher share of profit from joint venture companies. Supported by lower tax expense from the absence of prosperity tax, 9MFY23 PATMI jumped 11.8% YoY.

• YoY: 3QFY23 revenue declined marginally by 0.9% YoY mainly driven by lower approved regasification and transportation tariffs under RP2 for the Regasification and Transportation segments. Gross profit slipped 9.7% YoY on the back of lower revenue and higher depreciation expenses (+11.6% YoY) in Gas Processing and Regasification segments. Nevertheless, PATMI jumped 10.0% YoY supported by lower tax expense as mentioned above.

• QoQ: 3QFY23 revenue declined 5.3% QoQ mainly attributed to lower product prices (steam and industrial gases) and lower industrial gas sales volume in the Utilities segment following planned plant turnaround in Kertih. Consequently, PBT dropped 5.1% QoQ in line with revenue drop.

Impact

• No change to our earnings forecasts.

Outlook

• PETGAS has concluded the key terms of the third term Gas Processing Agreement with Petronas and is pending the finalisation of overall agreement. The overall agreement is expected to be finalised by year end and will commence in 1 Jan 2024.

• Additionally, PETGAS has made the final investment decision regarding the LNG storage expansion at Pengerang in September 2023. The LNG storage expansion will be in the form of floating storage units with an additional capacity of 200k m3. Capital expenditure will be around RM100mn, and the project is expected to complete by 2HFY24.

• Moving into 4QFY23, as the MRP continues to trend downwards (4QFY23: RM41.50/MMBtu vs 3QFY23: RM42/MMBtu) leading to lower internal gas cost while maintenance expense is expected to be higher, the overall operating expense for the group should remain flat QoQ. Hence, we believe the group’s results would remain stable QoQ in the coming quarter.

• Overall, PETGAS is expected to continue to register YoY improvement in earnings in the coming quarter on the back of absence of prosperity tax.

Valuation

• Maintain Buy with an unchanged target price of RM20.60/share based on sum-of-parts valuation.

Source: TA Research - 21 Nov 2023