INVESTMENT HIGHLIGHTS

• Petronas Gas Bhd’s (PetGas) 1QFY17 earnings improved by +3.6%yoy to RM463.2m

• Sales remain stable, rising by similar quantum to RM1.169b

• Only Regasification segment recorded growth in profit

• Declared first interim dividend of 15sen per share

• Maintain NEUTRAL with revised TP of RM20.00 per share

Earnings on target. PetGas’ 1QFY17 earnings grew by +3.6%yoy to RM463.2m premised on an increase in sales of +3.4%yoy to RM1.169b. The increase in sales is largely attributable to: (i) higher utilities revenue in tandem with higher offtake by customers; (ii) higher sales prices in-line with fuel gas price revision and; (iii) higher regasification revenue attributable to higher storage fees. 3MFY17 earnings came in on target, making up 25.2% and 26.1% of our and consensus full year FY17 earnings estimates.

Gas processing. Segment revenue remained stable year-over-year at RM389m, but segment profit declined by -12%yoy to RM176.7m. This is due to one-off staff costs adjustments as well as higher depreciation expense in line with completion of major project post 1QFY16. Profit margin contracted by -6.2ppts to 45.3%.

Gas transportation. Gas Transportation segment revenue and profit declined marginally by -1%yoy and -2.3%yoy respectively due to lower operational days as well as one-off staff costs adjustments and higher property taxes. Profit margin also declined by -1ppts to 78.3%.

Utilities. Although segment revenue increased by +15.3%yoy to RM291.5m, segment profit declined by -10.5%yoy also due to one-off staff costs adjustment and higher depreciation expense. Segment profit margin contracted by -4.3ppts to 14.9%.

Regasification. Both segment revenue and profit performed comparatively well as revenue increased by +2.2%yoy and profit by +9.9%yoy. The commendable numbers are attributable to higher storage fees following weaker MYR/USD and lower operating costs.

Impact on earnings. No changes to earnings forecasts.

Maintain NEUTRAL. We are maintaining our NEUTRAL stance on PetGas with a revised FY18 TP of RM20.00 per share. We roll forward our valuation base year to FY18 with a forward PER18 of 21.2x pegged to EPS18 of 94.4sen. The target PER is based on PetGas’ rolling four-quarter average PER over six years

Source: MIDF Research - 16 May 2017