Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: MAYBANK

Petronas Gas Bhd
(Dec 1, RM11.14)
Maintain buy at RM11.14 with revised target price of RM14.10 (from RM12.80): We raise Petronas Gas Bhd's (PetGas) discounted-cash-flow target price to RM14.10 (+10%), following a 10% rise in our earnings forecast on the revision of transport fees forecast to RM1.30/GJ (GigaJoule). Overall, we see PetGas as a major beneficiary as Malaysia liberalises its gas supply and prices. We expect sustained earnings growth as it reaps transport income from third party gas injected into the PGU network pipeline by 2014 or earlier.

Results were ahead of expectations ' 2QFY11 net profit of RM389 million (+2% quarter-on-quarter; +91% year-on-year) took 1H earnings to RM772 million (+63% y-o-y). This is 60% and 58% of our and consensus initial full-year forecasts. The flat q-o-q performance was better than expected considering that 2Q results tend to be seasonally weaker largely due to deferment of maintenance costs (estimated RM100 million to RM150 million per annum) in 2H. An interim single-tier dividend per share of 15 sen was declared, payable on Dec 15.

Throughput services were the leading contributor, contributing 90% of PetGas's gross revenue in 2Q. Contributions from gas processing and gas transportation services were almost equal, with a 48:52 mix. The utilities division reported a 6% q-o-q drop in gross profit on weaker margins (-2.5 percentage points q-o-q) despite a higher revenue (+4% q-o-q).

FY11/13 earnings were lifted by 10%, to reflect the stronger 1H results but weaker 2H (-15% half-on-half). We raise throughput services gross profit by 13% to RM1.7 billion on higher capacity reservation charge (CRC) assumptions for transport rates (from RM1.18/GJ to RM1.30/GJ). We also raise the utilities division's gross margin by 4%.

We see upside to earnings if Petronas commercialises its first regasification plant (3.8 million tonnes par annum capacity) before 2014. We have not incorporated earnings from the: (i) 60%-owned 300MW Kimanis power plant; and (ii) two 40%-owned floating storage units (FSUs) for the first regasification plant in Melaka. PetGas may co-own more than two FSUs if a second regasification plant (similar to Melaka) is built in Johor by 2020. ' Maybank-IB Research, Dec 1


This article appeared in The Edge Financial Daily, December 2, 2010.