Petronas Gas; BUY; RM23.80
Price Target: RM28.60; PTG:MK

Petronas Gas (Petgas) announced yesterday that it has entered into new gas processing agreement (GPA) and gas transportation agreement (GTA) with Petronas upon expiry of the existing gas processing and transportation agreement (GPTA). The new agreement will last for 20 years effective from 1 Apr 2014 until 31 Dec 2033. Petronas holds a 61% stake in Petgas.

The structure of the new agreements is similar to GPTA, whereby Petgas will be paid a fixed reservation charges with revised rate of RM 2,330/ mmscfd; and flow rate of RM 0.20/GJ on incremental volume of dry gas above an agreed threshold. For the new GTA, gas transportation fee is based on transportation tariff and shipper’s capacity reservation with different flow rate charges for Peninsular Malaysia, Sabah and Sarawak.

Petgas has yet to disclose the threshold level for gas volume and mechanism for reservation charges calculation. The company has arranged for an analyst briefing this Friday and more details will be provided at the briefing. Based on our initial estimates, we believe the new agreement will provide similar earnings to the group given that : -1) reservation charge will be slightly higher than the previous rate, and 2) Petronas will provide dry gas to Petgas for internal consumption at no cost. Stable earnings from GPTA accounted for c.90% of FY13 net earnings and we expect Petgas to enjoy similar return under the new GPA and GTA. There may be potential changes on performance based structure income for ethane, propane and butane, but this segment accounts for <5% of earnings.

We maintain our FY14-15F earnings forecast pending more details from the analyst briefing this Friday. Maintain BUY call for Petgas for its promising outlook and upside from new regas and power plants.

Source: HwangDBS Research - 1 Apr 2014