Period  2Q14/1H14

Actual vs. Expectations At 48% and 50% of our FY14 full-year estimates and market consensus, the 1H14 net profit of RM853.3m came in within expectations.

Dividends  A 20 sen NDPS was declared in 2Q14, (entitlement date: 26 Aug-14; payment date: 11 Sep-14) which is higher than the 15 sen paid in 2Q13.

Key Results Highlights 2Q14 net profit rose 4% QoQ to RM435.3m as revenue grew 5% sequentially. The improvement in topline was mainly attributable to the new Gas Processing Agreement (GPA) and Gas Transportation Agreement (GTA) that took effect in Apr-14, which drove the revenues of Gas Processing and Gas Transportation units higher. However, bottom-line was partly off-set by higher opex. While the RGT reported improved results with operating profit rising 12%, the Utilities segment also posted higher earnings by 17% despite revenue dipping 2% over the quarter.

 On a YoY comparison, 2Q14 earnings surged 23% from RM353.3m in 2Q13, mainly driven by the full-quarter contribution from the RGT segment as the regasification terminal only officially started operation in end-2Q13. Likewise, net profit in 1H14 also increased, by 20% to RM853.3m from RM713.8m on the new RGT earnings contributions. There were no surprises from other business units.

Outlook  While the new GPA and GTA 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 at 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 Upgrade to MARKET PERFORM from UNDERPERFORM.

Valuation  Share price has declined 11% in the past two weeks to below our target price.

 Even then, the upside potential is still not attractive enough to warrant an outright OUTPERFORM call.

 Our new rating is MARKET PERFORM with unchanged price target of RM21.54/SoP share.

Risks  Delay in the commencement of Lahad Datu RGT.

Source: Kenanga