PETGAS’s 1QFY24 results met expectations. Its 1QFY24 core net profit rose 11% YoY driven largely by lower gas cost. We keep our forecasts, TP of RM17.87 and MARKET PERFORM call. The stock offers a dividend yield of c.4%.

PETGAS’s 1QFY24 core profit of RM469.5m met expectations at 24% of both our full-year forecast and the full-year consensus estimate. It declared a first interim NDPS of 16 sen, on track to meet our full-year forecast of 72 sen.

YoY. its 1QFY24 revenue dipped 3% largely due to a 15% contraction in utilities revenue while other business segments posted higher revenue such as gas processing (+5%), gas transportation (+4%) and regasification terminal (RGT, +1%). However, its core profit grew 11% as lower gas cost buoyed profits of gas transportation (+32%) and utilities (+32%).

Gas processing: The segment’s EBIT was flat despite higher revenue due to higher operating expenses, mainly depreciation following the completion of several capital projects.

Gas transportation: The segment’s EBIT jumped 32% due to lower cost of internal gas consumption (IGC).

Utilities: The segment’s revenue fell 15% due to lower product prices in tandem with the decline in fuel gas price and a lower electricity tariff on a downwards revision of ICPT surcharge. However, its EBIT jumped 32% on lower fuel gas cost.

RGT: The segment’s EBIT fell slightly by 2% on a flattish top line due to higher maintenance and depreciation charges.

QoQ. Its 1QFY24 revenue rose 2% on the back of higher revenue contributions from gas processing (+6%) and gas transportation (+3%). Its core profit grew by a sharper 7% due to lower maintenance expenses and taxation.

Forecasts. Maintained.

Valuations. We maintain our SoP-driven TP of RM17.87 (see Page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. 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 risks, and (ii) a global recession hurting demand for power, steam and industrial gases.

Source: Kenanga Research - 30 May 2024