PGB’s 2QFY21 core PATMI of RM438.6m (-20.2% QoQ; -17.6% YoY) brought 1HFY21’s sum to RM988.0m, within HLIB’s expectation (45.9%) and consensus (48.9%). Declared 2nd interim dividend of 16 sen/share. PGB’s earnings remained stable despite the ongoing Covid-19 pandemic, while management continued to look for investment opportunities for long term earnings growth. We maintain our BUY recommendation on PGB with unchanged SOP-derived TP of RM19.00, supported by: (i) healthy balance sheet with net cash position (RM1.51/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 2QFY21 core PATMI at RM438.6m (-20.2% QoQ; -17.6% YoY), bringing 1HFY21’s sum to RM988.0m (-2.4% YoY). We deem the results within HLIB’s expectation (45.9%) and consensus (48.9%). For 1HFY21, the group recognised net EIs of -RM32.5m (after accounting for MI), mainly attributed to unrealized forex translation loss during 1QFY21.

Dividend. Declared 2nd interim dividend of 16 sen/share (ex-date: 7 Sep 2021). YTD dividend payout would be 32 sen/share.

QoQ/YoY. Core earnings declined by 20.2% QoQ/ 17.6% YoY to RM438.6m due to combination of: 1) higher repair maintenance costs during the quarter; 2) higher internal gas fuel consumption and fuel gas costs; 3) higher depreciation charges; and 4) lower contribution from JVs Kimanis Power and Pengerang Gas Solutions.

YTD. Conversely, 1HFY21 core earnings was flattish -2.4% YoY, as the slight drop in contribution from 1) gas production (due to higher depreciation charges); 2) gas transportation (due to higher maintenance); and 3) JVs, was offset by improved contribution from 1) regasification (uptake from new ancillary services); and 2) utilities (lower gas input cost).

Outlook. PGB’s businesses has remained resilient despite the ongoing 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 recent reopening of industries will improve the demand for PGB’s utility and ancillary services towards 4QFY21. The on-going cost optimization exercises will continue to improve the group’s cost structure.

Growth. Management updated that both RM100m de-bottlenecking project and RM540m pipeline extension project have been approved by Energy Commission as part of capex spending under upcoming RP2 (2023-2025). The de-bottlenecking project for Southern PGU line will be completed by July 2022 and the new 42km pipeline extension project to a new power plant (and related industrial areas) in Pulau Indah will be completed by March 2023. Management is also targeting pockets of investment opportunities on IPPs, co-gens and utility solutions in Malaysia as well as the region.

Forecast. Unchanged.

Maintain BUY, TP: RM19.00. We maintain BUY on PGB with unchanged TP: RM19.00, based on SOP, supported by: (i) healthy balance sheet with net cash position (RM1.51/share); (ii) sustainable earnings and strong cash flow; and (iii) dividend yield of 5.3% (with potential upside from special dividend, as the group continues to improve its capital structure).

Source: Hong Leong Investment Bank Research - 24 Aug 2021