• PetGas announced that it has secured the 3rd Term Gas Processing Agreement (GPA) for the period year 2024 until 2028 along with new revision of Reservation Charges (RC) and Performance Based Structure (PBS) incentives.

• We are neutral on this as the higher revised rate will be partially offset by escalating operating cost, thereby bringing minimal impact to earnings. Thus, we adjust our earnings forecast for FY24F and FY25F by 2.6% and 1.4% respectively.

• Maintain a HOLD call with a higher TP of RM16.52 (from RM16.46). Our valuation is derived based on DCF valuation with a WACC of 8.0% and a long-term growth of 0.5%.

Recap on FY2023 Financial Performance

Petronas Gas Berhad (PetGas) FY2023 recorded a better-thanexpected performance where both turnover and earnings rose 4.6% YoY and 8.1% YoY respectively. This is attributed from its soared revenue from Utilities segment that aligned with higher product prices due to elevated fuel gas price and ICPT surcharge imposed during the year (1H23: 20 sen/kWh, 2H23: 17 sen/kWh). Subsequently, earnings improved to RM1.9bn (vs RM1.75bn in FY22) thanks to higher share of profit from JV companies (i.e. Kimanis Power Plant), lower finance cost and impact from unfavorable forex movement following early settlements of USD lease liability for RGTSU as well as the absence of prosperity tax. The group also declared fourth interim DPS of 22sen, bringing total DPS to 72sen for FY2023.

Update on Gas Processing Segment

Post 4Q23 analyst briefing, the group mentioned that the 3rd Term of Gas Processing Agreement (2024 – 2028) under its Gas Processing (GP) segment with PETRONAS has been finalized in Dec 2023. To elaborate, its annual Reservation Charge (RC) is revised higher to RM1,704mn from RM1,612mn in 2nd Term (2019 - 2023). We think this is neutral to PetGas’ earnings as it will be offset by the expected higher operating costs onwards. Meanwhile, the Performance Based Structure (PBS), namely incentives for producing ethane, propane, butane (or called C2,C3,C4 gas) also revised higher to RM120mn p.a (subject to performance) from RM90mn p.a previously. GP segment booking capacity remains unchanged at 1,750mmscfd.

Higher Capex in 2024

PetGas guided that 2024 capex to be slightly higher than FY23 at >RM1.1bn on the back of i) LNG storage expansion in Pengerang (targeted COD mid-2025), ii) cold energy Air Separation Unit (ASU) project under Utilities segment that separates air components into liquid (achieved FID in Dec 2023) and iii) progressing EPCC works at Sipitang power plant for industrial gases (targeted COD 2026).

Earnings Revision

In view of RC and PBS revision, we upgrade our earnings forecast for FY24F/FY25F by 2.6%/1.4% to RM1.93bn/RM1.94bn.

Maintain HOLD at TP of RM16.52

Reiterate a HOLD call with a higher TP of RM16.52. Our valuation is derived based on DCF valuation with a WACC of 8.0% and a long-term growth of 0.5% (vs 0.3% previously).

Source: BIMB Securities Research - 5 Mar 2024