PGB’s 3QFY22 core PATMI of RM507.6m (+7.8% QoQ; -13.8% YoY) and 9MFY22 of RM1.4bn (-9.6% YoY) were within HLIB’s expectation (77.8%), but above consensus (80.1%). We estimated the impact of the Prosperity Tax at c.RM90m in 9MFY22 (deemed as an EI). Declared a third interim dividend of 18 sen/share (YTD: 50 sen/share). We expect PGB’s earnings to remain affected by the increasing fuel gas prices for the year on top of the Prosperity Tax while earnings for Gas Transportation and Regasification are likely to be adjusted downward under the upcoming RP2. Maintain HOLD with an unchanged SOP derived TP of RM17.85.

Within expectations. PGB reported 3QFY22 core PATMI at RM507.6m (+7.8% QoQ; -13.8% YoY) and 9MFY22 at RM1.4bn (-9.6% YoY). We have excluded an estimated RM90m negative impact from the Prosperity Tax at 33% and RM117.7m unrealized forex loss in 9MFY22. We deem the results within HLIB’s expectation (77.8%), but above consensus (80.1%).

Dividend. Declared a third interim dividend of 18 sen/share (ex-date: 29 Nov 2022). Total dividend YTD was 50 sen/share.

QoQ. Core earnings improved by +7.8% to RM507.6m, mainly due to improved sales and profit from Utilities segment (favourable impact from contracts renewal) and higher contribution from joint venture Kimanis Power.

YoY. Core earnings dropped by -13.8% on higher operating costs, higher internal gas consumptions (IGC) and increased fuel gas prices (Malaysia Reference Price by Petronas) as well as positive adjustment on IGC for Regasification segment in SPLY.

YTD. Core earnings declined by -9.6% to RM1.4bn, significantly dragged by the weaker Utilities segment on higher fuel gas input costs, despite the improvement in the segment’s revenue, while Transportation segment and Regasification segment were affected by higher IGC and price of fuel gas price (will be recovered in following RAB review).

Outlook. Demand for gas and utilities are expected to continue improving in tandem with the economic recovery. Gas Processing earnings will largely sustain into subsequent quarters, being protected under existing long-term contract with Petronas. While Gas Transportation and Regasification long term prospects are protected under RAB structure, short term earnings remain affected by higher IGC and increasing fuel gas price before being recovered in subsequent review period for RP2 (2023-2025). Utilities segment has seen some improvement in current quarter with improved margins after renewing some long term contracts with more favourabl e terms (include cost past-through clause), given that existing contracts are affected by increasing fuel gas price while tariff pricing is matched to Tenaga’s fixed tariff pricing.

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 maintaining its dividend payout (given its high current net cash position of 89.0 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 - 15 Nov 2022