Period

2Q15/1H15

Actual vs. Expectations

2Q15 results came within expectations with 1H15 core net profit of RM860.6m making up 48% of both inhouse and street’s full-year estimates.

Dividends

A 14.0 sen NDPS was declared in 2Q15, (ex-date: 19 Aug; payment date: 11 Aug), bringing 1H15 NDPS to 28.0 sen vs. 20.0 sen paid in 1H14.

Key Results Highlights

2Q15 net profit surged 82% QoQ to RM818.0m from RM449.9m in 1Q15, mainly due to RM407.4m in investment tax allowance granted for plant rejuvenation and revamp. Stripping this out, 2Q15 core earnings would be RM410.6m, which fell 9% QoQ as revenue dipped 2% over the quarter. This was led by a 13% decline in Utilities revenue as a result of lower offtake by clients, thus Utilities’operating profit contracted 62%. Elsewhere, Gas Processing (GP), Gas Transportation (GT) and Regasification (RGT) posted 1%-2% marginal topline growth due to a shorter working month in February for 1Q15 while EBIT for GT inched up 1% but with 2% and 5% decline for GP and RGT, respectively. In addition, share of profit for JV and other income fell sharply to RM3.3m from RM23.8m in 1Q15.

YoY, 2Q15 core earnings fell 6% from RM435.3m while revenue dipped 2%. The weaker earnings again was due to decline in Utilities earnings (-11%) and JV incomes (-77%). While GT posted flattish earnings, GP earnings improved due to higher performance base structure (PBS) income on plants’ higher liquid extraction performance. On the other hand, RGT posted operating profit that contracted 13% while revenue fell 1% due to the downward revision in the tariff rate which took effect in Jun 2014. YTD, 1H15 core earnings and revenue both grew 1%.

Outlook

With Lahad Datu RGT already called off, the RAPID RGT in Pengerang will be the only earnings catalysts for PETGAS, which will commence in 4Q17.

Unlike its two other sister companies, namely PCHEM (OP; TP: RM6.37) and PETDAG (MP; TP: RM21.60), PETGAS is least affected by the crude oil price movement and earnings are mainly determined by business volumes of gas processing and transportation while Utilities may be the only business segment likely to be affected by oil prices. Changes To

Forecasts

No changes to FY15E and FY16E numbers as we never factored in Lahad Datu RGT earnings.

Rating

Maintain MARKET PERFORM.

Valuation

We decided to remove valuation for Lahad Datu RGT since it already called off. With higher TP for GASMSIA (MP; TP: RM2.68), our new price target for PETGAS is now at RM21.99/SoP share, from RM22.02/SoP share previously.

Risks

Delay in the commencement of Pengerang RGT.

Source: Kenanga Research - 5 Aug 2015