Petronas Gas' (PTG) FY12 core net profit beat  our  numbers  but  was  in  line  with consensus,  making  up  105.6%  and  98.5%  of  both  estimates  respectively.  Its  FY12 total 50 sen dividend also surpassed our projection of 47 sen. Following our internal coverage  revamp,  we  have  revisited  our  financial  model  and  tweaked  our  DCF valuation  after  adjusting  our  forecasts.  We  upgrade  the  stock  from  SELL  to NEUTRAL, with a RM18.53FV.  

Lifted  by  disposal  of  its  investment  in  Gas  Malaysia.  PTG's full year net profit was 5.6% above our forecasts due to slightly lower than expected year-end cost provisions as well as better than expected sales from its utilities division. Revenue dipped  by a marginal 2.2%  y-o-y  due  to  lower  revenue  contribution  from  its  gas  processing  business  (down 12.0% y-o-y) but core net profit grew 4.3% y-o-y, lifted by a RM100m gain arising from the partial disposal of its investment in Gas Malaysia via an initial public offering. Stripping off the disposal gain, PTG's core net profit would have come in 2.2% lower y-o-y.  

Dishing  out  a  FY12  total  dividend  of  50  sen.  PTG  also  declared  a  single  tier  final dividend  of  35  sen  per  in  respect  of  the  financial  year  ended  31  Dec  2012,  subject  to shareholders' approval at the forthcoming annual general meeting. This amount, combined
with the 15 sen interim dividend it paid in September 2012, will bring its total dividends for FY12  to  50  sen  per  share,  which  is  6.4%  higher  than  our  initial  forecast.  This  will represents a dividend payout of 70%, with a yield of 2.7% for 2012.

Upgrade  to  NEUTRAL.  Following  an  internal  coverage  revamp,  we  have  revisited  our financial model and revised some assumptions. This leads to a small 1.3% cut in our FY13 forecast  earnings  and  a  1.0%  uptick  in  our  FY14  estimate.  While  2013  may  be  a  more favorable  year  for  PTG  due  to  the  potential  contribution  from  its  Regasification  Terminal business in Malacca, we believe that the stock is currently trading at lofty valuations, which may  cap  its  upside.  That  said,  we  are  upgrading  the  stock  from  SELL  to  NEUTRAL,  at RM18.53 FV, based on sum-of-parts valuation (please see Figure 1).

Source: OSK