• Petronas Gas (PGas) 1Q18 core earnings grew 3.5% yoy and was in line at 25% of ours and consensus’ estimates.

• The growth was driven by the regasification unit with the commissioning of its new terminal in Pengerang in Nov 2017.

• A first interim DPS of 16sen was declared, implying 66% payout.

• Maintain HOLD with an unchanged DCF-derived TP of RM18.80.

Gains from new terminal partly offset by weaker GP and JVs

PGas’ 1Q18 core earnings (excluding unrealised forex gain) grew 3.5% yoy to RM476m driven by structural growth at the regasification unit with the commissioning of the new Pengerang regasification terminal in Nov 2017. The gains were partially offset by higher costs at other divisions owing to increased depreciation charge and staff costs. The associate and JV contribution also weakened significantly possibly due to a one-off impact at its Kimanis Power Plant operations.

Mild qoq weakness as effective tax rate normalised

On qoq basis, earnings fell 2.2% as effective tax rate normalised. The effective tax rate in 4Q17 was lower due to the RAPID tax incentive being recognised upon completion of the new regasification terminal. At pretax level, earnings grew 5% on improved efficiency across all segments. Overall, core earnings were inline with ours and consensus estimates at 25%.

Dividend declared

PGas announced its first interim DPS of 16 sen. This implies a 66% payout, similar to historical trend of 65-70% payout on full year basis.

Maintain HOLD with unchanged RM18.80 TP

We reiterate our HOLD call on PGas with an unchanged RM18.80 TP. We believe its fundamental is intact as we view earnings risks ahead of the IBR implementation in FY19 may have been fairly priced in with share price already easing 10.3% over the 12-month period.

Source: BIMB Securities Research - 18 May 2018