Period

3Q15/9M15

Actual vs. Expectations

3Q15 results came within expectation, bringing 9M15 core net profit to RM1.40b which make up 78% of both our inhouse and street’s full-year estimates.

The RM1.40b core earnings were adjusted for: (i) RM407.4m investment tax allowance posted in 2Q15, and (ii) RM167.5m unrealised forex loss on finance lease liability in 3Q15 or RM237.9m YTD.

Dividends

A 15.0 sen 3rd interim NDPS was declared in 3Q15, (exdate: 18 Nov; payment date: 14 Dec), bringing 9M15 NDPS to 43.0 sen vs. 40.0 sen paid in 9M14.

Key Results Highlights

3Q15 core earnings grew 5% QoQ to RM472.5m from RM451.8m on the back of 5% hike in revenue. This was driven by the earnings recovery in Utilities Segment which saw its operating profit being doubled to RM42.5m from RM21.5m as higher offtake by clients, boosted the segment’s revenue by 18% to RM256.8m from RM217.5m. While Gas Processing (GP) earnings normalised to RM172.7m from RM199.6m previously, Gas Transportation (GT) posted flattish earnings. Earnings from Regasification (RGT) improved RM6.3m or 9% QoQ. On other hand, associates and JV incomes improved significantly to RM23.5m from RM3.3m in 2Q15.

YoY, 3Q15 core income rose 9% from RM435.1m while revenue inched up slightly by 1%. GT posted 2% hike in operating profit, despite flattish topline, led by lower operating cost while RGT’s earnings rose 6% on the back of 8% jump in revenue due to higher storage fees. However, both GP and Utilities which saw their operating profits falling 3% and 6%, respectively, due to higher plant maintenance costs. Meanwhile, associate and JV income soared 54% from RM15.2m previously.

YTD, 9M15 core earnings rose 9% to RM1.40b from RM1.29b while revenue inched up 1% to RM3.32b from RM3.28b. GP reported operating profit which grew 9% as revenue rose 3%, on lower operating costs, while GT’s earnings expanded 3% on the back of 3% hike in revenue as business volume increased. However, both Utilities and RGT reported lower earnings by 19% and 2%, respectively, as the former faced lower offtake while the latter incurred higher maintenance costs.

Outlook

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

Unlike its two other sister companies, namely PCHEM (OP; TP: RM6.29) and PETDAG (MP; TP: RM22.15), 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 in FY15-FY16 estimates for now.

Rating

Downgrade to UNDERPERFORM from MARKET PERFORM.

Valuation

Price target maintains at RM21.99/SoP share.

Share price has risen 11% from its recent low in end-Aug. It is now ahead of its valuation, which prompts us to downgrade the stock to UNDERPERFORM.

Risks

Delay in the commencement of Pengerang RGT.

Source: Kenanga Research - 2 Nov 2015