• PGas 4Q17 core earnings grew 2.6% yoy and 18.2% qoq to RM487.2m to bring FY17 earnings up 1.8% to RM1.8bn which is in-line with ours and consensus estimates.

• The robust qoq growth was driven by combination of higher income from new revenue stream (ie. Penegerang RGT) and lower effective tax rate.

• A final interim DPS of 19sen (4Q16: 19sen) was declared bringing FY17 DPS to 66sen (FY16: 62sen). This is a 4% growth and implies a 73% payout (FY16: 71%).

• Maintain HOLD on PGas with a slight increase in our SOP derived TP to RM18.90 following our recent upgrade on Gas Malaysia’s TP.

RAPID boost

Adjusting for one-off items (mostly unrealised forex gains), PGas’ 4Q17 core earnings grew 18.2% qoq and 2.6% yoy to RM487m. The growth was underpinned by additional revenue contribution from the newly-commissioned Pengerang Regasification Terminal (RGT). Along with the new asset are tax incentives accorded to the investment in the RAPID complex; the 4Q17 effective tax rate eased to 16.6% (3Q17: 22.7%).

Utilities segment impacted by lower demand

Revenue for the Utilities segment in 4Q17 improved 10% qoq and 6% yoy. The yoy improvement was mainly on higher tariff while the sequential growth was driven by resumption in sales volume with the completion of turnaround maintenance at Petronas Chemicals’ major olefins unit in 3Q17. Operating profit margin for the Utilities division recovered qoq to 11.5% (3Q17: 9.7%) but was still lower yoy (4Q16: 12.7%) on higher depreciation charge following the completion of scheduled turnaround activities.

GT margins weakened possibly on higher R&M costs

The Gas Transmission (GT) continues to see eroding operating profits in 4Q17 despite pipeline network reliability sustained at 100%. The 14% qoq drop in operating profit was due to higher depreciation charge following completion of capital projects and R&M expense being back-end loaded.

Fundamentals remain sound; no change to earnings

FY17 earnings were in-line with ours and consensus estimates. No changes to estimates for now. Its FY18 outlook remains intact as regulators retain tariffs until year end. We believe any softness in GT’s earnings under IBR may be cushioned by the lower tax rate.

Maintain HOLD

Maintain HOLD with a slight increase in our SOP-derived TP to RM18.90 following our recent upgrade in Gas Malaysia’s TP. This implies an FY18F PE of 19.8x before easing to 18.2x in FY19F.

Source: BIMB Securities Research - 27 Feb 2018