Investment Highlights

• We maintain BUY on Petronas Gas (PGas) with an unchanged sum-of-parts-based (SOP) fair value of RM19.39/share (exhibit 2). Our FV also reflects a 3% premium for our unchanged ESG rating of 4-star premised on the group’s strategy to achieve net zero carbon emissions by 2050F. Our fair value implies a FY24F PE of 20.8x, 1 standard deviation above its 5-year average.

• MISC has entered into a binding Heads of Agreement (HoA) with Petronas Gas’ 65%-owned Pengerang LNG (Two) (PLNG2) for the supply, operation and maintenance of a Liquefied Natural Gas (LNG) Floating Storage Unit (FSU) which will be deployed at the Petronas LNG Regasification Terminal Pengerang (RGTP) in Johor.

• The charter, which is worth up to a sum of US$213.7mil (RM1.02bil) for a period of 20 years, will involve the conversion of MISC’s LNG carrier Puteri Delima Satu (Exhibit 1), which has a capacity of 137.5k-cubic meter (m3) and is currently in lay-up. Upon completion, the FSU will be deployed at the RGTP in Johor by 2Q2025.

• While PGas has yet to make an official announcement, we believe that this is indicative of a potential increase in the regasification capacity of RGTP which currently has 2 terminals in Pengerang with a capacity of 400k m3 and a regasification throughput of 490mil cubic feet per day stands (mmscfd).

• Recall, PLNG2 had invited prospective contractors in 2021 to submit non-binding expressions of interest to utilise a proposed new tank with a preferred capacity of 160K cubic metres on a 20-year commercial lease agreement. However, higher project costs had forced the company to re-evaluate its approach with a commitment to reach final investment decision (FID) by mid-2023.

• Assuming the FSU would have a regasification throughput of 168.5 mmscfd (converted from the LNG vessel’s current capacity), we expect this will generate an incremental SOP of +5.2% based on the Regulatory Period 2 (RP2) regasification tariff of RM3.165 per gigajoules (GJ) per day. On an annualised basis, we expect to see an increase of +4.6% to our FY25F core earnings.

• We maintain our estimates for now pending further clarity and confirmation from the management.

• The stock currently trades at an attractive FY24F PE of 18.2x, below the pre-FY20 peak of over 20x. This is supported by compelling dividend yields of 5%.

Source: AmInvest Research - 1 Nov 2023