Petronas Gas’ (PTG) 3Q17 core net profit of RM412m drove 9M17 profit to RM1,291m (+2% yoy), which was within both our and consensus expectations, at 74% and 73% of 2017 estimates respectively. On the whole, 9M17 earnings was primarily driven by higher gas transportation and regasification contribution. PTG declared another 16 sen DPS, bringing the 9M17 payout to 47 sen (9M16: 43 sen). We maintain a HOLD call and lower our target price to RM19.22 (from RM19.30) post Gas Malaysia changes.

3Q17 Results in Line

PTG’s 9M17 revenue rose 3% yoy to RM3,506m primarily driven by stronger utilities (+10.4% on the back of better demand and an upward revision in fuel-gas price) and regasification (+2.9% attributed to higher storage fees on stronger US$ and higher volume) segments. Gas transportation and processing revenues was relatively flat at +0.8% and - 0.4%, respectively. Operating profit was relatively flat (+0.2% yoy) as the better performances from regastification (+6.8%) and gas transportation (+2.0%) were negated by weaker gas processing (-4.5%) and the utilities (-5.0%) segments. The higher interest income and lower tax rate (-1ppt) helped lifted cumulative core net profit by 1.5% yoy to RM1,291m.

3Q Core Profit Fell on Compressed Margins and Weaker Associate

3Q revenue inched up a marginal 0.5% yoy to RM1,163m driven primarily by stronger regasification and utilities performances, as a result of higher storage fees lifted by a stronger US$ and following the upward price revision in fuel gas. However, margin compression and weaker associate contribution resulted in core net profit declining by 2.9% yoy.

Maintain HOLD; TP Lowered to RM19.22

In line with the satisfactory results, we make no changes to our earnings forecast. However, we lowered our SOTP-based target price to RM19.22 (from RM19.30) to reflect our recent target price change on Gas Malaysia (GMB MK; Hold - TP: RM2.89).

Risks to Our Call

Key upside risks to our call include more favourable outcome for the upcoming TPA framework. Downside risk would result from a delay in the commencement of Pengerang RGT (later than 4Q17) and operational discruption of existing assets.

Source: Affin Hwang Research - 13 Nov 2017