9MFY22 earnings was affected by higher gas fuel costs on higher consumption (IGC) and increasing price. Earnings for FY22 will remain affected by the increasing gas pricing. Nevertheless, we expect PGB to address the higher IGC (for GTP and RGT) in the subsequent RP2 2023-2025, while PGB has seen improvement in its Utilities segment in 3QFY22, following the renewal of utilities contract terms on better allocation of gas costs. We maintain our HOLD recommendation on PGB with unchanged SOP-derived TP of RM17.85.

Results recap. PGB reported PATMI for 3QFY22 at RM507.6m (+7.8% QoQ; -13.8% YoY) and 9MFY22 at RM1.4bn (-9.6% YoY), in line with HLIB, but above consensus. The drop YoY and YTD was mainly affected by the increase in gas fuel costs, in tandem with the higher consumption and increasing gas Malaysia Reference Pricing (MRP) charged by Petronas. Nevertheless, 3QFY22 showed improvement QoQ driven by Utilities segment on better terms of the renewed contracts since earlier of the year.

GTP & RGT. Gas Transmission (GTP) and Regasification (RGT) incurred higher internal gas cost (IGC), due to the higher internal consumption and increased gas MRP. We expect MRP to continue trending upwards in the coming quarters. Both GTP and RGT are subject for new tariff structure under the upcoming RP2 2023-2025. Management seeks to address the volatility of earnings via a timely review of IGC and forex under RP2.

Projects. Overall projects worth c.RM1.4bn are being undertaken to continue grow PGB’s earnings base. Southern PGU debottlenecking has been completed in May, while others are progressing as per schedule (lateral gas pipeline to Pulau Indah may face some delay due to change of construction method). The proposed new third LNG storage tank is still subject for review with new consideration of higher construction cost environment, FID is only expected by mid-2023.

Forecast. Unchanged.

Maintain HOLD, TP: RM17.85. We maintain HOLD on PGB with TP of RM17.85, based on SOP. We expect PGB’s near term earnings to remain affected by the increasing fuel gas costs (affected by the on-going Russia-Ukraine war), on top of the Prosperity Tax impact for the year, with further risks from upcoming review of RP2 2023-2025.

Source: Hong Leong Investment Bank Research - 16 Nov 2022