Petronas Gas’ (PTG) 1Q20 core net profit rose 14% yoy, meeting our expectations, delivering 33% and 29% of our and the street’s full-year forecasts. Both gas processing and regasification businesses reported stronger profits, offsetting a weaker utilities segment. PTG declared a 16sen DPS, similar to 1Q19. Maintain Sell rating with rolled forward target price of RM12.80.

Regasification and Stronger Associate Lifted Earnings

1Q20 revenue rose 2% yoy attributable to higher RP1 tariff revision for the gas transportation and regasification segments, which will take effect from 2020-22. This partly offset the weaker utilities segment as electricity sales volume declined. After excluding the RM152m unrealized forex loss, core net profit rose 14% yoy on lower operating and depreciation costs for gas processing and the result of higher tariffs for the regasification segment, leading to higher contribution from regasification terminal Pengerang.

Stronger Associate Profit Drives Qoq Strong Result

Similarly, core net profit increased 10% qoq driven by higher gas processing and regasification profit on higher IGC performance and RP1 tariff. Associate profit also jumped 2 fold to RM45m as operations resumed for Kimanis Power following the unforeseen generation block shutdown in 4Q19. In addition, the Pengerang ASU also helped lift associate profits.

Maintain SELL

We make no changes to our earnings forecasts. We maintain our Sell rating as we remain cautious on the demand outlook. We roll forward our valuation horizon to 2021E and derived a higher target price of RM12.80 (from RM12.55). We have projected an average 80% dividend payout ratio across 2020-22E, which translates to a decent yield of 4.2-4.3%. Key risks to our call include better-than-expected demand affecting volume.

Source: Affin Hwang Research - 22 May 2020