- We maintain our BUY recommendation on Petronas Gas (PGas) with an unchanged sum-ofparts- (SOP) based fair value of RM17.62/share, implying an FY12F PE of 23x. But we are likely to raise our valuation as the group will benefit from the multiple gas and power projects in the pipeline.

- The Edge Financial Daily reported PGas' managing director/chief executive officer as saying that the group is on track to complete its Lahad Datu liquefied natural gas (LNG) terminal in 2015. The terminal, which will cost RM1bil, will convert LNG into gas for an adjacent 300MW electricity generation plant, which will be owned by Tenaga Nasional.

- PGas plans to call for tenders for the initial 10 facilities by September this year, with bids for the remaining facilities to be opened by early 2013. The facility will have a capacity of 100 million metric standard cu ft per day (mmscfd).

- Newspapers also reported that the front-end engineering and design services contract was awarded to US-based engineering services provider Fluor Corp. 

- Assuming a project IRR of 12% and weighted average cost of capital of 6%, we estimate that this Lahad Datu regassification terminal project could enhance PGas' DCF by 2%.

- Besides this Lahad Datu project, there are other regassification terminals in the pipeline such as in Pengerang and possibly in Lumut. In Pengerang's Refinery and Petrochemical Integrated Development (RAPID), the power plant is likely to be owned by PGas. Recall that PGas has centralised utilities facilities in Kerteh, which produce electricity, as well as a 60% stake in the 300MW gas-fired Kimanis power plant, expected to be completed by the end of 2013.

- We remain positive on PGas due to:- (1) Approaching earnings inflection point when the completion of the Lekas re-gassification plant by August this year boosts Peninsular Malaysia's natural gas capacity by 25%; (2) Global shift from nuclear to natural gas for power generation; (3)  Government's strategy to gradually remove natural gas subsidies by 2015, which will lead to a more viable pricing mechanism for electricity generation; (4)  Multiple domestic regassification projects, and (5)  Expanding power generation ventures.

- The stock is currently trading at a fair FY12F PE of 22x, at parity to its 2009 peak. But we expect further newsflow on LNG projects to further catalyse the stock's re-rating process.