- We maintain our HOLD call on Petronas Gas (PGas) with a tweaked sum-of-parts value of RM24.30/share (vs. RM24.40/share previously), which implies an FY15F PE of 27x.

- PGas announced last week that the group has entered in a shareholders agreement with Dialog Group to form a JV to undertake the development of a liquefied natural gas (LNG) regasification terminal, located at the Pengerang Deep Water Terminal. The project cost is estimated to be at circa RM2.7bil.

- Our lower fair value stems from the lower project cost vs. our previous assumption of RM4bil. We maintain our project IRR assumption at 9%.

- PGas will have an effective stake of 65% in the Pengerang regasification terminal project (RGTP), Dialog with 25% and the State of Johor with the remaining 10%.

- The RGTP will consist of a regasification terminal which will function to receive and store LNG unloaded from carriers into two storage tanks, with capacity of 200,000 cu metre each. The regasification plant will have an initial send-out capacity of 3.5mil metric tonnes per annum (~490mil MMscfd).

- We understand that the regasified LNG will mainly be supplied to the Pengerang Integrated Complex (PIC), where the Refinery and Petrochemical Integrated Development (RAPID) is located. The gas can also be injected into the Peninsular Gas Utilisation pipeline system for the purpose of national energy security supply.

- According to the Bursa announcement, PGas’ portion of the project is a c.RM2bil. The facilities will begin construction in 2QFY15, and are expected to be operational by 4QFY17.

- Overall, we are positive on this as the commencement of the Pengerang facility will enhance its regasification division and contribute meaningfully to PGas’ bottomline.

- As the Pengerang RGTP’s capacity is relatively similar to the existing Malacca regasification facility’s of 530mil MMscfd, we expect the Pengerang RGTP to contribute approximately RM300mil per annum to the group’s EBIT.

- The stock currently trades at an FY15F PE of 24x, while dividend yield remains decent at 3%.

Source: AmeSecurities