• Overview. 3Q19 core profit declined 11% yoy and 12% yoy on combination of weaker tariffs for GT and RGT under IBR (2019 pilot year). Utilities segment also performed weaker following statutory turnaround at the Air Separation Unit (ASU) in Kertih.

• Key highlights. Operating profit at the GT segment came in weaker (Table 2) on higher repair and maintenance costs (+18% qoq) while statutory turnaround at the ASU was in tandem with turnaround activities at some of PChem’s plants in Kerteh. The JV/associate line saw structural growth from contribution of the ASU in Pengerang.

• Against estimates: inline. 9M19 core profit fell 6% drawing impact from the weaker GT and RGT contribution under IBR and worsened by the Utilities performance. Overall, it was inline with ours at 74% and consensus at 76%.

• Dividend. An 18sen third interim DPS (3Q18: 18sen) was declared, implying 83% payout, bringing 9M19 DPS to 50sen (9M18: 50sen).

• Outlook. We expect 4Q19 performance to rebound especially for Utilities as ASU operations resume. The margin expansion at GP is structural as some assets are fully depreciated; it guided for 2019 CAPEX of c.RM1.1-1.2bn mainly for major rejuvenation capex at GP.

• Our call. Downgrade to HOLD with RM17.25 DCF-derived TP as the price has risen by over 8% since we last upgraded. At current levels, dividend yields are decent at 4.4-4.5%.

Source: BIMB Securities Research - 20 Nov 2019