Investment Highlights

• We maintain our BUY call on Petronas Gas (PGas) with a slightly lowered sum-of-parts-based (SOP) fair value of RM20.20 (from an earlier RM20.35/share), which reflects a premium of 3% from our ESG rating of 4 stars. This also implies an FY21F PE of 20x.

• Pending an analyst briefing later today, our revised SOP stems from a FY22F earnings decrease of 10% from the impact of the prosperity tax for taxable income above RM100mil.

• Nevertheless, the group’s 9MFY21 core net profit of RM1,583mil (excluding unrealised forex loss of RM47mil mainly from the Sungai Udang regasification terminal’s [RGT] USD debt) was within our and consensus’ expectations, accounting for 79% of our and street’s FY21F earnings. As a comparison, 9M accounted for 75%–78% of the respective FY19–20 core earnings.

• PGas’ 9MFY21 core net profit rose by 2% YoY from lower fuel costs for the utilities segment and decreased operating costs for the regasification division’s operating costs, notwithstanding a slight 1% decline in group revenue.

• QoQ, the group’s 3QFY21 revenue increased by 3% to RM1.4bil, driven by higher customer demand and prices for the utilities segment. However, 3QFY21 EBITDA margin surged 11 percentage points QoQ to 73% due to lower operating costs and internal gas consumption. Together with a 49% QoQ earnings rebound from the group’s 60%-owned Kimanis power plant, PGas’ 3QFY21 core net profit climbed by 35% QoQ to RM591mil.

• The group declared a third interim dividend 18 sen (+2 sen QoQ), translating to a conservative payout ratio of 64% (vs 131% in 9MFY20). Even so, we retain our FY21F–FY22F DPS at RM1.27/share on expectations that the group’s optimal balance sheet strategy could mean a payout ratio of over 100%, similar to FY20.

• Recall that PGas intends to proceed with a debt-to-equity ratio comparable with other infrastructure companies’ 55% over the next 3 years from its net cash position of RM298mil currently. This could mean special dividends which could potentially raise our FY21F–FY22F DPS by 53% to RM1.94/share, implying an eye-watering yield of 12%. Nevertheless, we caution that these estimates could be moderated by new investment plans, depending on the scale and financing structure.

• The stock currently trades at an attractive FY22F PE of 16x, below its 3-year average of 18x together with highly compelling dividend yields of 8% which could potentially be even higher if management maintains its capital optimisation strategy.

Source: AmInvest Research - 22 Nov 2021