Review

• Petronas Gas Berhad’s (PETGAS) 1QFY24 results came in within expectations.

• The group declared a first interim dividend of 16.0sen/share in 1QFY24 (1QFY23: 16.0sen/share).

• QoQ: 1QFY24 core profit grew 6.5% QoQ mainly attributed to lower maintenance costs and lower internal gas consumption (IGC) expenses as MRP fell from RM46.92/MMBtu RM41.51/MMBtu. All four segments registered higher gross profit QoQ. Nonetheless, PBT dropped 1.8% QoQ driven by lower contribution from associates and JV (-74.4% QoQ). JV company, 60%-owned Kimanis Power Plant enjoyed one-off tax benefit back in 4QFY23.

• YoY: 1QFY24 core profit surged 10.9% YoY driven by lower IGC expenses in line with the downward movement in MRP. Gross profit at Gas Transportation and Utilities segments improved YoY in tandem with the lower gas fuel prices. Meanwhile, gross profit for Gas Processing and Regasification division was largely flat despite lower gas fuel costs due to higher maintenance costs and depreciation expenses following completion of some major projects.

Impact

• No change to our earnings forecasts.

Outlook

• PETGAS has finalised and agreed with the key terms of the 3rd term Gas Processing Agreement (GPA) with Petronas and the agreement has commenced effective 1 Jan 2024. Despite higher fixed fee of RM1.7bn (RM1.61bn in 2nd term GPA) and higher performance fee of RM120mn (RM90mn in 2nd term GPA), as the plants become older, operating expenses are expected to increase and hence we do not expect the new GPA to contribute significantly to earnings growth.

• Moving into 2QFY24, MRP is estimated to trend upwards from 1QFY24 levels, leading to higher IGC expenses QoQ and hence lower earnings.

Valuation

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

Source: TA Research - 30 May 2024