1Q18 Results Briefing Takeaways

Petronas Gas (PTG) hosted their post 1Q18 quarterly results briefing participated by Kamal Bahrin (CEO), Shariza Sharis M Yusof (CFO) and Izan Hajar Ishak (new Head of IR). More details were shared regarding their operational performances, potential business expansion plans and tariffs on Third Party Access (TPA) which remains under discussion. We maintain our BUY call and TP at RM20.10.

Pengerang Projects Progressing Well

The new LNG Regasification Terminal in Pengerang (RGTP) with a total capacity of 490mmscfd has achieved full commercial operation on 9 April 18. Management estimate this to contribute around 8% of 2018E profit, slightly higher than our current forecast due to higher effective tax rate assumed. Meanwhile, the air separation unit (ASU) project is progressing well at 84% and targeted to achieve commercial operation by 4Q18, on track to contribute to earnings in the FY19E onwards.

TPA Discussion Still Ongoing

The TPA discussion with Energy Commission on the framework and tariff are still ongoing. Management expect the final outcome on the tariff to be reasonable, and do not foresee the newly formed government to affect the discussion. To recap, PTG is currently using depreciated replacement cost (DRC) as its asset value, with an allowable return of around 9%. We believe the decline in share price throughout 2017 has priced in the possible negatives.

Branching Out Into New Business?

Management shared briefly that it is looking to expand its income stream, but will still be within its current core competencies. The group could potentially look at new distribution channels, like LNG trucking instead of the traditional pipelines. LNG trucking are usually used to supply gas to more remote locations, where pipelines reach are limited but this is often more expensive.

Maintain BUY

We maintain our BUY call and SOTP-based target price at RM20.10. Downside risks include any negative outcome on the tariffs of the PGU system and regasification terminal and unforeseen operational disruption of existing assets.

Source: Affin Hwang Research - 21 May 2018