Period  4Q14/FY14

Actual vs. Expectations  The 4Q14 earnings came in above expectation; fullyear FY14 net profit of RM1.84b beat house/street estimates by 8%/7%. The positive discrepancy between our estimate and actual is due to higher-thanexpected associate and JV incomes (+RM245.9m) arising from the full commissioning all three blocks of Kimanis Power Plant (KPP) and the recognition of deferred tax asset arising from the investment tax allowance granted for KPP.

Dividends  A 15.0 sen NDPS was declared in 4Q14, (ex-date: 05 Mar-15; payment date: 25 Mar-15), bringing FY14 NDPS to 55.0 sen, lower than our assumption of 60.5 sen.

Key Results Highlights  The 4Q14 net profit surged 36% QoQ to RM571.3m, despite topline dipping 1%, which was mainly helped by higher-than-expected associate & JV incomes as stated above. Both Gas Processing (GP) and Gas Transportation (GT) earnings fell 4% on flat revenues. On the other hand, although turnover declined 5%, Utilities’ operating profit rose 4%.

 YoY, 3Q14 net income soared 45% from RM393.7m on the back of 8% hike in turnover. This was on the back of: (i) higher associate & JV incomes stated above, (ii) new rate effective Apr-14 which saw GP earnings rising 19%, and (iii) higher transportation volume which boosted GT earnings by 20%. However, the RGT posted flattish earnings.

 YTD, full-year FY14 net profit surged 24% from RM1.49b while revenue grew 13% over the year. Fullyear impact of Melaka RGT helped to push RGT earnings by 88% while Utilities’ earnings soared 53% on the back of 16% jump in revenue. Higher business volume drove GT topline and bottomline higher by 8% and 12%, respectively. Meanwhile, despite a new rate structure, GP posted lower earnings by 7% due to lower performance-based structure income.

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

 Unlike its two other sister companies, namely PCHEM (OP; TP: RM5.79) and PETDAG (UP; TP: RM15.93), PETGAS is least affected by the crude oil price movement and earnings are mainly determined by business volumes of gas processing and transportation while the Utilities may be the only business segment likely to be affected by oil prices.

Changes To Forecasts  No changes to FY15E and FY16E numbers.

Rating Maintain MARKET PERFORM.

Valuation  Following our TP downgrade on 14.8%-owned associate GASMSIA (UP; TP: RM2.22) last week to RM2.22 from RM3.54, PETGAS’ new price target is now lowered to RM22.02 from RM22.14 based on SoP valuation.

Risks  Delay in the commencement of Lahad Datu RGT. 

Source: Kenanga