PETGAS’s 1HFY23 results met expectations. Improved performance across all segments in 2QFY23 on softening fuel gas price is a tell-tale for its earnings resilience in the 2H, anchoring a dividend yield of >4%. We maintain our forecasts but fine-tune up our TP to RM17.22 (from RM17.13). Maintain MARKET PERFORM.

PETGAS’s 1HFY2 core profit of RM930.1m met expectations at 49% and 50% of our full-year forecast and the full-year consensus estimate, respectively.

It declared a second interim NDPS of 16.0 sen (ex-date: 11 Sept; payment date: 22 Sept), tallying 1HFY23 NDPS to 32.0 sen which is the same payout in 1HFY22.

YoY, its 1HFY23 revenue grew 12%, driven by the utilities segment (+45%) while top line performances from gas processing, gas transportation and regasification (RGT) were flattish to slightly negative. However, its EBIT was flat as the almost tripling in utilities profit was offset by earnings decline at other divisions.

Gas processing: The segment’s EBIT fell by 8% on a 2% growth in top line due to higher depreciation and capex.

Gas transportation: The segment’s EBIT fell 20% on a 1% contraction in top line due to on higher internal gas consumption.

Utilities: The segment’s top line grew 45% on higher product prices for steam and industrial gases, in line with higher fuel gas price, coupled with higher electricity tariff on a 20.0 sen ICPT surcharge during 1HFY23. However, its EBIT almost tripled boosted by low input cost, i.e., gas, and the more favourable terms of renewed contracts with customers.

RGT: The segment’s EBIT contracted 9% on a 4% decline in top line due to lower RP2 tariff for Pengerang RGT coupled with higher opex.

Its sequential quarterly performance shows a rosier picture. QoQ, its 2QFY23 revenue slid slightly by 2% to RM1.64b mainly attributable to lower prices of products of the utilities segment, i.e., steam and industrial gases, in line with lower gas price. However, its core net profit jumped 21% due to lower fuel gas and internal gas consumption costs on falling gas prices.

Forecasts. Maintained.

We raise our SoP-driven TP to RM17.22 (see Page 3) from RM17.13 as we roll over our valuation base year to FY24F (from FY23F). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

We continue to like PETGAS for its earnings stability of which >90% is safeguarded by the IBR framework, and the RP2 has reinforced its earnings stability anchoring a decent dividend yield of >4%. However, its valuation is already rich at current levels. Maintain MARKET PERFORM.

Risks to our recommendation include: (i) regulatory risk, and (ii) a global recession hurting demand for power, steam and industrial gases.

Source: Kenanga Research - 28 Aug 2023