• Maintain HOLD (TP: RM16.46). Petronas Gas Berhad (PetGas) FY23 net profit of RM1.82bn was in line with our and consensus expectations, amounting for 104.0% and 96.7% respectively. 4QFY23 earnings reduced to RM442mn (vs RM465mn in 3QFY23) dragged by higher operating expenses, mainly maintenance expenses following higher level of maintenance activities performed during the quarter. A fourth interim DPS of 22sen was declared which similar to corresponding quarter, brings to total DPS of 72sen for FY2023. We reckon incoming earnings to stay resilient on the back of renewal Gas Processing Agreement (2024-2028), normalisation in gas price and extension of imbalance cost pass-through (ICPT) surcharge in 1H2024. Reiterate a HOLD call on PetGas with higher DCF derived TP of RM16.46 as we roll our valuation to FY2024 (WACC: 8.0%, TG: 0.3%).

• Key highlights. PetGas’s FY2023 earnings rose 10.6% YoY thanks to i) higher contribution from joint-venture companies that surged 87.2% YoY, ii) lower financing costs and iii) muted impact from unfavourable foreign exchange movement following early settlement of USD lease liability for floating storage at LNG RGTSU, Melaka.

• Earnings Revision. No changes pending management update.

• Outlook. We believe PetGas’s earnings to remain sturdy onwards owing to i) sustainable income stream secured under the 3rd Term of the Gas Processing Agreement (2024-2028) – achieved finalisation with PETRONAS on 17 December 2023, ii) stability in gas price to lift fuel gas cost across all segments and iii) continuation of the ICPT surcharge of 17 sen/kWh for 1H2024.

Source: BIMB Securities Research - 28 Feb 2024