Petronas Gas’ (PTG) 3Q19 core profit was in line with expectations. Gains from the gas processing business were offset by weaker transportation and regasification segments under the new incentivebased regulation (IBR) framework. Joint venture earnings remained strong with the start-up of the Pengerang air separation unit (ASU). We maintain our HOLD rating and 12-month target price of RM16.25. Ytd dividend payout at 50sen was similar as for 9M18.

Results Within Expectations

PTG’s 9M19 profit fell 6% yoy to RM1.4bn, but came within expectation, comprising 78% and 76% of our and the street’s full-year estimates. Overall 3Q revenue fell by 5% yoy as the decline in the gas transportation and utilities segments outweighed the stronger gas processing revenue. JV profit increased by 55% following the commencement of Pengerang ASU plant in Johor.

Kertih ASU Underwent Turnaround; Weaker JV Profit

Revenue was down 3% qoq as one of the air separation units (ASU) in Kertih underwent a statutory plant turnaround. This led to a lower sales volume, with the EBITDA margin falling by 2.2ppts as a result of the higher maintenance cost. JV profit declined 23% qoq following a lower contribution from Kimanis Power due to scheduled shutdown on its generation block, as well as reduced contribution from Pengerang Gas Solution. More details should be provided in the results conference call this morning on updates on the RP1 tariff proposal.

Maintain HOLD

We maintain our Hold rating and target price of RM16.25. The current valuation looks fair with profit expected to decline progressively following the change in the regulated asset base. We have imputed a flat DPS in FY19E, which implies a 4.3% yield which should lend support to the share price. Key upside/downside risks depend on the outcome of the allowable return, as well as any unforeseen operational disruption of the existing assets which might lead to more downside risks.

Source: Affin Hwang Research - 20 Nov 2019