Period  1Q14

Actual vs. Expectations 1Q14 results came within expectations, with the net profit of RM418.0m accounting for 23% of our FY14 full-year estimates and 25% of market consensus.

 We deem the result to be in line as the earnings of Kimanis IPP will kick start in 2H14.

Dividends  No dividend was declared as expected.

Key Results Highlights 1Q14 net profit grew 6% QoQ to RM418.0m on a 3% hike in topline thanks to a broad-based improvement in all segments. In fact, at PBT’s level, the pretax profit rose 15% QoQ. The disproportionate growth in bottomline is due to a lower tax expense in 4Q13 arising from a change in deferred tax estimates with corporate tax rate lowered to 24% from 25% previously. Segmentalwise, earnings for Gas Processing and Gas Transportation units benefitted from lower cost despite dips in revenues while the Utilities unit saw its earnings being normalised following a higher offtake by customers.

 YoY, the 1Q14 rose 16% from RM360.4m last year, as revenue grew 16% as well. One of the key reasons for the strong YoY earnings growth was because of contribution from Melaka RGT terminal, which only started operations in end-2Q13. Earnings for other segments were satisfactory except Gas Processing unit where its PBT contracted 20% after a 9% decline in topline. This was mainly due to lower export volume for propane and butane as a result of lower production and lower prices.

Outlook  While the new Gas Processing and Transportation Agreements will not have any material impact to earnings, PETGAS’ FY14 earnings will reach a new high, mainly propelled by the full-year contribution from the Melaka RGT and the start of Kimanis IPP in end-2Q14.

 Although there is still no progress on Lahad Datu RGT, this together with the RAPID RGT in Pengerang would be the next earnings catalysts for PETGAS.

Changes To Forecasts No changes to our FY14-FY16 forecasts for now.

Rating Maintain UNDERPERFORM, given its stretched valuation.

Valuation  TP is maintained at RM21.54/SoP share.

Risks  Delay in the commencement of Kimanis IPP and Lahad Datu RGT.

Source: Kenanga