Period  3Q14/9M14

Actual vs. Expectations The 9M14 earnings came slightly below our expectation as the 9M14 net profit of RM1.27b made up 71% of our FY14 full-year estimates and 74% that of market consensus.

 The main discrepancies between our estimates and actual results were: (i) the absence of Kiminas IPP’s earnings which already started operation in end-2Q14 and (ii) overestimating of gas processing earnings by us.

Dividends  A 20 sen NDPS was declared in 3Q14, (ex-date: 18 Oct-14; payment date: 08 Dec-14), bringing 9M14 NDPS to 40 sen which was higher than the 15 sen paid in 9M13.

Key Results Highlights Despite revenue growing 2%, 3Q14 net profit fell 4% QoQ to RM418.6m from RM435.3m, mainly driven by lower Gas Transportation, Utilities and RGT earnings where the segmental PBT declined by 4%, 19% and 11%, respectively. This was partly due to higher cost of revenue and other opex. On the other hand, Gas Processing earnings were fairly flattish, which grew slightly by 1% as revenue grew 1% as well.

 YoY, 3Q14 net earnings rose 10% as revenue grew proportionally. This was mainly attributed to the new Gas Processing Agreement and Gas Transportation Agreement (GTA) that took effect in Apr 2014, which drove the earnings of Gas Processing and Gas Transportation units higher. In addition, Utilities segment also reported higher earnings thanks to higher off-take by customers. However, RGT posted lower earnings on lower revenue coupled with higher depreciation charges.

 YTD, 9M14 core earnings jumped 16% from RM1.09b in 9M13, mainly due to RGT as the terminal was only started in end-2Q13. While Gas Transportation unit benefited from the GTA, earnings of Gas Processing declined due to higher depreciation on plant rejuvenation and revamp program.

Outlook  PETGAS’ FY14 earnings are expected to 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 the Lahad Datu RGT, the Melaka RGT and IPP mentioned above together with the RAPID RGT in Pengerang would be the next earnings catalysts for PETGAS.

Changes To Forecasts We have cut FY14-FY16E forecasts slightly by 1%-2% on: (i) Kimanis’ IPP earnings to start in 4Q14 and (ii) fine-tuning other segments’ assumptions.

Rating Maintain MARKET PERFORM.

Valuation  Post earnings-revision, our new price target is now RM21.24/SoP from RM21.54/SoP share previously.

Risks  Delay in the commencement of Lahad Datu RGT.

Source: Kenanga