Investment Highlights

• We maintain our BUY call on Petronas Gas (PGas) with an unchanged sum-of-parts-based (SOP) fair value of RM20.20, 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, we maintain our forecasts which incorporate the potential impact of FY22F prosperity tax.

• The group’s FY21 core net profit of RM2,027mil (excluding unrealised forex loss of RM38mil mainly from the Sungai Udang regasification terminal’s [RGT] USD debt) was within our and consensus’ expectations, coming in 2% above our forecasts and marginally below consensus.

• PGas’ FY21 core net profit rose by 2% YoY mainly from lower operating costs at the regassification division which also benefited from maiden LNG reloading services together with decreased depreciation charges on certain fully depreciated assets at the utilities segment.

• QoQ, the group’s 4QFY21 revenue increased by 5% to RM1.5bil, driven by higher customer demand and prices for the utilities segment. However, 4QFY21 EBITDA margin dropped 17% points QoQ to 56% due to higher operating costs and internal gas consumption. Partly offset by a 23% QoQ earnings surge from the group’s 60%-owned Kimanis power plant, PGas’ 4QFY21 core net profit fell 25% QoQ to RM444mil.

• Including a special DPS of 10 sen, the group’s fourth interim dividend 32 sen (+14 sen QoQ) translates to a conservative FY21 payout ratio to date of only 82% vs. 125% in FY20. Pending management guidance, we have lowered FY22F– FY24F payout ratio to 100%, which reduced FY22F DPS by 11% and marginally for FY23F–FY24F.

• 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 gearing position of only 3% currently.

• We still think that this may yet mean special dividends which could potentially raise our FY22F–FY24F 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 FY23F PE of 18x, below pre-FY20 peak of over 20x. This is supported by compelling dividend yields of 5% which could potentially be even higher if management adheres to its capital optimisation strategy.

Source: AmInvest Research - 22 Feb 2022