- We maintain our BUY recommendation on Petronas Gas (PGas) with an unchanged sum-of-parts- (SOP) based fair value of RM24.30/share, which implies an FY14F PE of 25x.

- The Edge reported that Petronas Gas’ managing director Samsudin Miskon said the RM3bil Lekas regassification terminal (RGT) in Sg Udang, Melaka will be up and running soon, having received its first cargo shipment of 152,888 cubic metres last week. While the plant has been commissioned, it will only start operating at the end of this month.

- He indicated that the RGT will add 4%-5% to 2HFY13 earnings and 10% for FY14F. Our channel checks indicate that this encompasses contributions only from the RGT and excludes any positive impact from additional gas transportation charges through the group’s pipelines as management is uncertain of the gas volumes which will flow through the system.

- Based on our estimates, including the gas transportation charges via the group’s pipelines, the earnings contribution adds 15% for FY13F assuming 35% of the RGT’s 530mmscfd capacity is taken up.

- This is because Petronas’ president/chief executive officer Datuk Shamsul Azhar Abbas has already affirmed that the prices for natural gas for the power and industrial sectors have been set at discounts of 15% and 10% to market prices. Recall that the power sector and Gas Malaysia have been allocated 150mmscfd and 40mmscfd respectively for this year.

- As such we maintain FY13F-FY15F earnings for now, pending further developments regarding the take-up of gas volumes for the Lekas RGT.

- Management also indicated that the group’s 5-year capital expenditure is budgeted at RM8.1bil in FY13F-FY17F, which includes two additional RGT in Pengerang and Lahad Datu, as well as plant rejuvenation projects.

- We understand that the Pengerang RGT capex will amount to RM4bil or 34% higher than the Lekas RGT, RM1bil for the Lahad Datu RGT and RM1.4bil for the plant rejuvenation and revamp programme.

- As the full details of the Pengerang RGT have yet to be revealed, we have not incorporated any contributions to our SOP. But based on a RM4bil capex, a project IRR of 9%, equity discount rate of 10% and debt:equity ratio of 80:20, our preliminary estimates indicate that this project could potentially raise the group’s SOP by another 64 sen.

- While the stock is currently trading at a pricey FY14F PE of 23x, we expect further news flow on LNG projects to sustain the stock’s re-rating momentum.

Source: AmeSecurities