Period     1Q13

Actual vs. Expectations    While net profit of RM360.4m accounted for 24% of our full-year estimates and 23% that of market consensus, we consider this was slightly stronger-than-expected given a strong 2H13 is expected on the back of the start of Melaka RGT in end-Jun.

We estimated that the results for gas transportation and utilities came in 2% above our estimates, on an annualised basis.

Dividends     No dividend was declared as expected.

Key Results Highlights     Despite flattish topline, the 1Q13 net profit surged 22% QoQ thanks largely to strong segmental results at Gas Processing and Gas Transportation businesses. This has reflected in its overall 1Q13 EBITDA margin, which improved to 53% from 44% in 1Q12. In addition, the share of associates income in 1Q13 also higher to RM10.6m from RM6.2m previously.

The 1Q13 operating profit for Gas Processing rose 14% QoQ to RM221.5m while revenue grew 5%, on the back of higher performance-based structure income as higher export volume for propane and butane. This has also impacted its Gas Transportation positively with EBIT rising 18%, on higher transportation capacity.

YoY, 1Q13 net earnings rose 8%, although revenue remained flattish. The improved results were mainly driven higher earnings at Gas Processing and Utilities segments, thanks largely to lower depreciation charges after a review of useful lives in its PPE in 2012.

Outlook     Although the launch of the Melaka RGT has been delayed to 2Q13, it will still be the new earnings kicker for FY13 while the Kimanis IPP will take PETGAS’ FY14 earnings to new heights.

Changes To Forecasts    We are upgrading FY13-FY14 estimates by 1%-2% as adjustment in assumption for 1) lower depreciation charges; 2) higher operating margin for Gas Transportation and Utilities by 2%-3%; 3) Melaka RGT’s utilisation to 25% from 37.5% in FY13 as the RGT will start only in July from April previously. However, FY14 assumption maintains at 80%.

Rating     Maintain MARKET PERFORM

Valuation     We roll-over our valuation base year to CY14 from CY13, together with the earnings upgrades, our price target is now RM20.31/SOP share from RM19.86/SOP share previously.

Risks      The delay in the commencement of Melaka RGT, Kimanis IPP and Lahad Datu RGT.

Source: Kenanga