Petronas Gas’ (PTG) 4Q17 core net profit of RM483.7m pushed 2017 earnings to RM1,774.7m (+2% yoy), which was within our and consensus expectations, accounting for 101% of our and street forecasts respectively. PTG declared another 19 sen DPS, bringing the 2017 payout to 66 sen (FY16: 62 sen). We maintain our HOLD call with no major changes to our TP at RM19.23 (from RM19.22) post tweaks to our Gas Malaysia TP.

Utilities and Regasification Drove Revenue Increase

PTG’s 2017 revenue rose 5.4% yoy to RM4,810m primarily driven by stronger utilities (+9.2% on the back of better demand and an upward revision in fuel-gas price) and regasification (+22.6%, boosted by maiden contribution from the LNG regasification terminal starting November 2017) segments. Both gas processing and transportation segments recorded flat revenue (0%-0.6%) respectively. The main driver of the 4% increase in operating profit was entirely attributed to the regasification segment, where profit increased by 32%.

Better Qoq Performance as LNG Regasification Terminal Starts

Sequentially, revenue grew 12% to RM1,303.8m as the LNG regasification terminal commenced operation in November 2017. This also helped drive the improvement in core net profit, which increased 17% qoq.

Maintain HOLD; No Major Changes on TP

We make no changes to our existing 2018-19E EPS forecasts given that the results were in line with expectations; we also introduce our 2020E forecasts. We did a minor tweak on our target price (now at RM19.23), to reflect our target price change for Gas Malaysia (GMB MK; BUY; RM2.97). We maintain our HOLD call on PTG as we believe there is no strong rerating catalyst at this point in time due to the tariff revision uncertainty.

Risks to Our Call

Key upside risks include a more favorable outcome on the tariffs of the Peninsular Gas Utilisation system and regasification terminal from 2019 onwards. Downside risks would arise from any unforeseen operational disruption of existing assets.

Source: Affin Hwang Research - 27 Feb 2018