Petronas Gas; Buy; RM16.78
Price Target: RM18.50; PETG MK

Business Times reported that Petronas Gas has awarded a contract to Texas-based Flour Corp to provide front-end engineering and design services for a new liquefied natural gas regasification terminal in Malaysia.

The plan to construct the second regas plant is widely expected to provide gas supply to an adjacent 300MW combined cycle power plant in Lahad Datu, Sabah. The plant is jointly owned by Petronas and Tenaga to supply power to Sabah Electric SB (SESB). We understand the regasification service agreement will be on terms similar to Petgas’ existing GPTA, with reservation charges (for usage of regasification plant) and variable return based on gas volume and also potential incentive for efficiency gains. The fixed component will help Petgas to recoup the capex incurred and we do not expect start-up losses in the first few years of operation.

We expect the signing of regasification agreements for the Malacca and Lahad Datu regas plants to be the near term catalyst for Petgas. In addition, Petgas is well-poised for another new regas plant in Pengerang of Johor, and new ventures overseas given its strong balance sheet.

We reiterate our Buy rating with DCF-derived target price of RM18.50/share. We favour Petgas for its resilient earnings with no fuel risks, and strong growth catalysts supported by local O&G capex expansion and strong balance sheet for overseas expansions.

Source: HwangDBS Research - 2 May 2012