• The Energy Commission (EC) recently announced a new tariff for Peninsular Gas Utilisation (PGU), Regasification Terminal Sg Udang (RGTSU), and Regasification Terminal Pengerang (RGTP) that will be effective for 2024.

• We understand that the tariff for PGU and RGTSU were raised slightly to reflect higher fuel cost incurred in 2023. However, the tariff for RGTP were pared down slightly following lower fuel cost due to weaker than expected utilization rate.

• Overall, we are neutral on this as we foresee minimal impact to earnings at less than 1%. However, there could be some upside risk to our forecast owing to potentially lower IGC cost in FY24.

• Note that the IGC costs rose from 3% to 8% of the total operating cost during FY20-FY22, partially contributed to lower GP during the period. However, the MRP benchmark gas price has eased from its peak in 1Q23 which should underpin Petgas’ earnings in FY24.

• In view of the positive stock price performance that has gained by 12.2% over the past 12-months, we think this has fairly reflected its near-term earnings outlook. Hence, maintain a HOLD call with a TP of RM16.52.

Tariff Revision for FY2024

PetGas announced that the government through EC has approved the adjusted Incentive-Based Regulation (IBR) tariffs for 2024 under RP2. This will be applied to PGU, RGTSU and RGTP. The Gas Transportation (GT) tariff for PGU and high-pressure gas supply to Singapore were raised by 3.1% and 5.1% to RM1.096/GJ/day and RM1.701/GJ/day respectively. Meanwhile, tariff for RGTSU was only lifted by 0.3% to RM3.465/GJ/day whereas tariff for RGTP was revised slightly lower by 0.5% to RM3.150/GJ/day.

Annual Tariff Adjustment in RP2

Note that these tariffs will be effective only for a duration of 1-year from 1 January 2024 until 31 December 2024. To recap, PetGas previously requested from the regulator for adjustment of tariffs to be made on annual basis in RP2 (2023-2025), based on actual cost incurred the year before. In view of its position as an infrastructure provider, it argued that it should be shielded from the impact of volatility in energy prices. With regards to the tariff revision for FY24, we understand that the higher tariff were granted to offset the higher-than-expected Internal Gas Consumption (IGC) cost in FY23 at both PGU and RTGSU. However, tariff was lower at RGTP due to lower utilization rate than initial nomination, hence translating into lower IGC cost in FY23.

Rising IGC Cost has Negative Impact to GP

Overall, we are neutral on this as we foresee minimal impact to its bottomline at less than 1% (Table 2). However, there could be some upside risk to our estimate mainly due to potentially lower IGC cost in FY24. Note that the IGC costs were in an upward trend from 3% to 8% of the total operating cost during FY20-FY22, based on our estimate. This was in tandem with the historical rising MRP benchmark gas price which has partially contributed to lower GP (Chart 3). However, it has declined by c.33% from its peak of RM58.04/MMbtu in 1Q23 to RM39.63/MMBtu in 4Q23 (Chart 4) which should contribute positively to its earnings.

Maintain HOLD at TP of RM16.52

Reiterate a HOLD call with a 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%.

Source: BIMB Securities Research - 10 May 2024