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.
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