Petronas Gas: Lower pilot transport tariff mostly offset for 1 year Sell

We maintain our SELL recommendation for Petronas Gas (PGas) with an unchanged sum-of-parts-based (SOP) fair value of RM17.50/share, which implies an FY18F PE of 18x, a 20% discount to the 2-year average of 23x. Our forecasts are unchanged for now following the group’s announcement of the new transportation and processing agreements.

The new transportation tariff will be under a 1-year Incentive-Based Regulatory (IBR) pilot period from 1 January 2019 until 31 December 2019, which translates to a 14% reduction in the Peninsular Gas Utilisation tariff to RM1.072/GJ from RM1.248/GJ previously. It also stipulates the regassification tariffs have been set for RM3.518/mmbtu for the Sungei Udang, Melaka plant and US$0.637/mmbtu for Pengerang, Johor. Assuming a conversion rate of 1mmscfd=1,040mmbtu, the new tariff structure translates to an increase of 6.9% from the 530mmscfd-capacity Sungei Udang facility’s FY17 revenue of RM774mil.

Hence, the lower revenues from the transportation agreement are mostly offset by the regasification and new gas processing arrangements, which have raised the fixed processing reservation charge by 8.3% to RM2,524/mmscfd from an earlier RM2,330/mmscfd.

Others:

Property & REIT: Still awaiting major catalysts Neutral

Banking Sector: Non-household loans continue to gain momentum Overweight

RETAIL RESEARCH

Stocks On Radar: Malayan Banking, N2N, Ranhill, Bermaz Auto

ECONOMIC HIGHLIGHT

Malaysia: Expect PPI to stay weak

NEWS HIGHLIGHTS

Domestic Equities: Malaysian stocks region’s fifth best performer in 2018

Property Sector: Retail property expected to remain flat in Q1

JF Tech: Eyes stronger China contribution in FY19

FX: US dollar posted 4.3% gain in 2018, but don’t expect that in 2019

Source: AmInvest Research - 2 Jan 2019