PETGAS’s 1HFY24 results met expectations. Its 1HFY24 core net profit rose slightly by 1% YoY on lower gas cost. While its earnings growth may seem pedestrian, its regulated assets offer resilient earnings which support a decent dividend yield of c.4%, though we opine that it is currently fairly priced. Hence, we keep our forecasts, TP of RM17.87 and MARKET PERFORM call

PETGAS’s 1HFY24 core profit of RM941.2m met expectations at 48%/49% of our full-year forecast/full-year consensus estimate, respectively. It declared a 2nd interim NDPS of 16 sen, (ex-date: 04 Sep; payment date: 19 Sep), totalling YTD NDPS to 32 sen, on track to meet our full-year forecast of 72 sen.

YoY, its 1HFY24 revenue dipped slightly by 1% to RM3.27b, due largely to a 10% decline in utilities revenue which offset higher revenues recorded in gas processing (+5%) and gas transportation (+4%). Nonetheless, its core profit inched up 1% to RM941.2m on the back of lower gas cost as fuel gas price declined.

Gas processing: The segment’s EBIT fell 3% despite higher revenue due to higher operating expenses, mainly depreciation and maintenance expense following higher project completion.

Gas transportation: The segment’s EBIT rose 11% on higher revenue coupled with lower cost of internal gas consumption (IGC).

Utilities: The segment’s revenue declined 11% 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. Similarly, its EBIT contracted 5% due to lower revenue but was negated by lower gas cost following downward movement in average fuel gas price.

RGT: The segment’s EBIT fell 4%, despite flattish revenue, due to higher depreciation and floating storage units operating leases.

QoQ, its 2QFY24 revenue rose 2% to RM1.65b on the back of higher revenue contributions from gas processing (+1%) and utilities (+6%). However, its core profit remained flattish at RM471.7m.

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, it is already fairly priced 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 - 21 Aug 2024