PGB’s 2QFY22 core PATMI of RM470.8m (+5.2% QoQ; +7.3% YoY) and 1HFY22 of RM918.1m (-7.1% YoY) were within HLIB’s expectation (50.1%) and consensus (48.3%). We estimated the impact of the Prosperity Tax at c.RM60m in 1HFY22 (deemed as an EI). Declared a second interim dividend of 16 sen/share. We expect PGB’s earnings to remain affected by the increasing gas fuel prices for the year on top of the Prosperity Tax. Maintain HOLD with an unchanged SOP-derived TP of RM17.85.

Within expectation. PGB’s reported 2QFY22 core PATMI at RM470.8m (+5.2% QoQ; +7.3% YoY) and 1HFY22 at RM918.1m (-7.1% YoY). We have excluded an estimated RM60m negative impact from the Prosperity Tax at 33% and RM58.4m unrealized forex loss (due to RM depreciation) in 1HFY22. We deem the results within HLIB’s expectation (50.1%) and consensus (48.3%).

Dividend. Declared a second interim dividend of 16 sen/share (ex-date: 12 Sep 2022). Total dividend YTD was 32 sen/share.

QoQ. Core earnings improved by +5.2% to RM470.8m, mainly due to improves sales and profit from Utilities segment (favourable impact from contracts renewal) and Regasification segment (higher demand).

YoY. Core earnings improved by +7.3% on improved contributions from Gas Processing segment (on higher revenue) and Regasification segment (lower internal gas consumption cost as SPLY included prior year charges), which were partially offset by the lower contribution from Utilities segment (higher fuel gas input costs).

YTD. Core earnings declined by -7.1% to RM918.1m, significantly dragged by the weaker Utilities segment (higher fuel gas input costs), despite the improvement in the segment’s revenue. Nevertheless, we have seen higher contribution from Gas Processing segment (on improved incentives) and Regasification segment (on lower IGC cost as SPLY included prior year costs).

Outlook. Demand for gas and utilities are expected to continue improve in tandem with the economic recovery. Hence, 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 will remain affected 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 fixed tariff pricing. Management has been renewing its utilities contract to include cost pass-through clause.

RP2. No clear details on RP2 2023-2025 yet. Management continued to focus on building up its asset base with new projects in order to cushion the potential negative impact of transitioning from depreciated replacement costs to net book value (for gas transportation segment). Six projects worth RM1.4bn are being implemented (see Figure #3).

Forecast. Unchanged.

Maintain HOLD, TP: RM17.85. We maintain HOLD on PGB with an unchanged TP of RM17.85 based on SOP. While we expect PGB to continue maintain its dividend payout (given its high current net cash position of 87.2 sen/share), we expect PGB’s earnings to remain affected by the increasing fuel gas costs in the near term, on top of the Prosperity Tax impact for the year as well as uncertainty on new tariff structure under RP2 2023-2025.

Source: Hong Leong Investment Bank Research - 29 Aug 2022