- 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 a FY14F PE of 25x.

- We raise PGas’ FY13F net profit by 22% due to the deferred tax write-back from the Lekas regassification terminal’s (RGT) RM592mil investment allowance. For FY14F-FY15F, we marginally tweaked our forecasts as PGas’ 1HFY03 pretax profit of RM954mil came in within our and market expectations, accounting for 47% of both our and street’s FY13F estimates. The group declared a flat YoY interim dividend of 15 sen as expected.

- As natural gas prices for the power and industrial sectors have been set at discounts of 15% and 10% respectively, we maintain our assumptions for the full impact of the RGT in 2HFY13, which accelerates FY13F core earnings by 15%.

- The group’s 2QFY13 revenue was flat QoQ at RM931mil but net profit surged by 2.6x QoQ due to RGT’s tax allowance. Excluding the one-off deferred tax write-back, PGas’ 2QFY13 core net profit slid by 2% in both QoQ and YoY to RM353mil mainly due to the depreciation of the ringgit which erased associate contributions and also contributed to the start-up loss of RM3mil at the 530mmscfd Lekas regassification terminal (RGT), which only commenced operation in July this year.

- Likewise, PGas’ 1HFY13 net profit surged by 65% YoY to RM1,305mil. But the group’s 1HFY13 core net profit (excluding the Lekas RGT tax write-back and gain from the listing of Gas Malaysia last year) rose by only 3% YoY to RM714mil.

- Besides the Lekas RGT, PGas is also involved in the RM1bil Lahad Datu regassification terminal to supply gas to the Tenaga power plant by 2015. Additionally, the group’s 60%-owned Kimanis power plant is still expected to be completed by the end of this year.

- Although the final investment decision for the RM60bil Refinery and Petrochemicals Integrated Development (RAPID) in Pengerang has been deferred to 1QFY14, we understand that its RGT project which could be larger than the RM2bil Lekas development.

- As the full details of the Pengerang RGT are 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.

- With the stock currently trading at an attractive FY14F PE of 19x vs its 2007 peak of 22x, we expect further news flow on LNG projects to sustain the stock’s re-rating momentum.

Source: AmeSecurities