PGB’s 1QFY21 core PATMI of RM546.4m (+19.3% QoQ; +14.4% YoY), within HLIB’s expectation (25.8%), but slightly above consensus (27.4%). Declared 1st interim dividend of 18 sen/share. PGB earnings continued to sustain despite the on-going Covid-19 pandemic, while management has shared further growth plans to improve earnings under the upcoming RP2. We maintain our BUY recommendation on PGB with adjusted SOP-derived TP of RM19.00 (from RM19.22), supported by: (i) healthy balance sheet with net cash position (RM1.46/share); (ii) sustainable earnings and strong cash flow; and (iii) dividend yield of 5.3% (with potential upside from special dividend).

Within expectation. PGB’s reported 1QFY21 core PATMI at RM546.4m (+19.3% QoQ; +14.4% YoY). We deem the results within HLIB’s expectation (25.8%), but slightly above consensus (27.4%). During the quarter, the group recognised net EIs of -RM33.0m (after accounting for MI), mainly attributed to unrealized forex translation loss.

Dividend. Declared first interim dividend of 18 sen/share (ex-date: 10 Jun 2021).

QoQ. Core earnings improved by 19.3% to RM549.4m due to lower fuel gas costs (in line with the lower gas reference price) and operating cost during the quarter (catch up in the repair and maintenance works for Transportation and Regasification segments in tandem with the relaxation of MCO in SPLQ).

YoY. Similarly, core earnings improved by 14.4% due to lower internal gas consumptions and on-going cost optimization exercise as compared to 1QFY20 when Covid-19 pandemic first hit as well as lower fuel gas cost and depreciation charges for Utilities segment.

Outlook. PGB’s businesses are expected to remain resilient despite on-going Covid- 19 pandemic, being protected under existing long-term contract with Petronas (Gas Processing) and related parties (Utilities) and RAB structure (Gas Transportation and Regasification). The on-going cost optimization exercises will continue to improve the group’s cost structure.

Growth. Management revealed further plans in de-bottlenecking the Southern PGU line which will increase capacity by another 150mmscfd to PGU system for capex of RM100m, to be completed by July 2022. The other planned project is the RM541m capex on a new 42km pipeline extension project to a new power plant in Pulau Indah and related industrial areas. These capex will be discussed with Energy Commission for the inclusion for allowable returns under upcoming RP2 period (2023-2025). The group is also looking to expand its coverage into northern region for new opportunities in Co-Gen and clean water supply.

Forecast. Adjusted FY21-22 earnings by +0.7% and +2.5%, post incorporating Annual Report numbers. Introduce FY23 profits at RM2bn.

Maintain BUY, TP: RM19.00. We maintain BUY on PGB with adjusted TP: RM19.00 (from RM19.22), based on SOP, supported by: (i) healthy balance sheet with net cash position (RM1.46/share); (ii) sustainable earnings and strong cash flow; and (iii) dividend yield of 5.3% (with potential upside from special dividend).

Source: Hong Leong Investment Bank Research - 27 May 2021