PGB’s 1QFY22 core PATMI of RM447.3m (-5.5% QoQ; -18.6% YoY) was below HLIB’s expectation (20.8%) and consensus (23.0%). We estimated the impact of the Prosperity Tax at c.RM30m for the quarter (deemed as an EI). Declared first interim dividend of 16 sen/share. We expect PGB’s earnings to remain affected by the increasing gas fuel prices for the year (driven by the on-going RussiaUkraine war). Cut earnings for FY22 by 14.8% and FY23 by 5.9%, and introduce FY24 earnings at RM1.9bn. Downgrade to HOLD (from Buy) with a lower SOPderived TP of RM17.85.

Below expectation. PGB’s reported 1QFY22 core PATMI at RM447.3m (-5.5% QoQ; -18.6% YoY), after excluding an estimated RM30m negative impact from the Prosperity Tax at 33% for the period. We deem the results below HLIB’s expectation (20.8%) and consensus (23.0%).

Dividend. Declared First Interim Dividend of 16 Sen/share (ex-date: 3 Jun 2022).

QoQ. Core earnings declined by -5.5% to RM447.3m mainly due to lower contribution from joint ventures (affected by higher feed-in gas costs) and higher effective tax rate during the quarter (even after excluding RM30m impact from Prosperity Tax).

YoY. Core earnings declined by -18.6% due to higher overall operational costs across all segments, mainly driven by higher fuel gas costs (largely on Utilities - electricity). Nevertheless PGB will be able to recoup back the higher fuel cast costs for its Transportation and Regasification segments in subsequent period.

Outlook. Management guided PGB’s earnings will largely sustain into subsequent quarters, being protected under existing long-term contract with Petronas (Gas Processing) and RAB structure (Gas Transportation and Regasification). However, Utilities segment may remain dragged (at least for another quarter) by the high fuel gas input cost for electricity power generation as the cost is non pass-through while tariff pricing is matched to Tenaga’s pricing (reviewed half yearly).

Forecast. Cut Earnings for FY22 by 14.8% and FY23 by 5.9%. Introduce FY24 Earnings at RM1.9bn.

Downgrade to HOLD, TP: RM17.85. Following the earnings adjustment, we downgrade PGB to HOLD (from Buy) with a lower TP of RM17.85 (from RM19.00) based on SOP. While we expect PGB to continue maintain its dividend payout, we expect PGB’s earnings to remain affected by the increasing fuel gas costs in the near term (affected by the on-going Russia-Ukraine war), on top of the Prosperity Tax impact for the year.

Source: Hong Leong Investment Bank Research - 20 May 2022