FY21 results matched expectations with flattish earning versus last year which reinforced that its earnings are safeguarded by the IBR framework. Going forth, we expect predictable FY22 earnings while the RP2 which starts from Jan 2023 should also see comparable returns as RP1. In all, we maintain MP on the stock which is supported by its decent yield, with a higher TP of RM17.44.

FY21 results within expectations. FY21 results matched expectations with core profit of RM2.03b which was 2% below our forecast and 1% below market consensus. It declared 4th interim regular NDPS of 22.0 sen and special NDPS of 10.0 sen (both ex-date: 09 Mar and payment date: 22 Mar) in 4QFY21 vs. 27.0 sen (22.0 sen regular and 5.0 sen special) in 4QFY20. This totalled FY21 NDPS to 82.0 sen (72.0 sen regular and 10.0 sen special) against our projection of 89.0 sen and 127.0 sen (72.0 sen regular and 55.0 sen special) paid in FY20.

Sequential results impacted by IGC cost. Despite revenue rising 5%, 4QFY21 core profit declined 25% QoQ to RM442.3m from RM589.9m due to higher opex mainly attributable to higher internal gas consumption (IGC) cost for Gas Transportation (GT) and RGT. In addition, RGT had an adjustment in 3QFY21 with a lower IGC cost due to prior overstatement in 2QFY21. Meanwhile, the improved revenue was solely driven by Utilities segment which jumped 19% owing to higher product prices as well as higher sales volume. On the other hand, share of associate and JV incomes improved to RM47.4m from RM38.7m.

A flattish YoY earning. YoY, 4QFY21 core profit barely changed from RM442.1m in 4QFY20, although revenue expanded 8% as higher IGC cost mentioned above as well as higher fuel gas cost at Utilities impacted its profitability. YTD, FY21 core profit inched up 1% to RM2.03b from RM2.00b in FY20 with revenue also decreasing slightly by 1% over the year. Segmental-wise, RGT saw its operating profit rising 14% due to lower utilities expenses while Utilities posted earnings which jumped 34% on lower depreciation as depreciated assets remained in use. However, this was mitigated by lower GT earnings by 12% on higher IGC and maintenance costs.

Forward earnings to stay resilient. While FY22 earnings are expected to be negatively impacted by one-off prosperity tax, the IBR framework provides safeguard to its earnings for the final year under RP1. We believe PETGAS will continue to see earnings certainty in RP2 which starts from Jan 2023. The new RM541m gas pipeline project to cater for an IPP in Pulau Indah should be a new earnings growth avenue in RP2 when the project is ready in 1QFY23. In addition, there is a potential 3rd storage tank in Pengerang, could be a new earnings kicker.

Maintain MP for its decent yield. Post results, we keep FY22 estimates and introduce new FY23 forecast with earnings expected to grow at 4.5%. Our FY23 forecast did not factor in the new gas pipeline project yet. Going forth, we still like its resilient earnings profile which is well reflected in the price. Thus, MP rating is maintained with revised TP of RM17.44 from RM17.02 after rolling over valuation base to FY22. Our rating is supported by a sustainable c.5% dividend yield.

Risk to our call is higher-than-expected business volume for nonregulated business.

Source: Kenanga Research - 23 Feb 2022