• Petronas Gas Bhd’s (PetGas) 2QFY17 earnings expanded by +5.3%yoy to RM425.3m

• Sales sustained growth at +4.9% to RM1.173b

• All four business segments registered year-over-year profit growth

• Second interim dividend of 16sen declared

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

Earnings on track to meet full year expectations. PetGas’ 2QFY17 earnings grew by +5.3%yoy to RM425.3m premised on an increase in sales of +4.9%yoy to RM1.173b. The increase in sales is largely attributable to: (i) excellent plant and operational performance; (ii) high production volume to meet customer demands and; (iii) favourable selling prices. 6MFY17 cumulative normalised earnings (excluding forex and asset disposal impacts) came in on target, making up 48.0% and 48.5% of our and consensus full year FY17 earnings estimates.

Gas processing. Segment profit managed to sustain despite a slight fall in revenue as plant reliability performance was at 99% for 1HFY17. The slight decline is largely non-operational, caused by oneoff staff adjustment cost and higher depreciation expenses.

Gas transportation. Gas Transportation segment revenue and profit expanded by +1.2%yoy and +3.5%yoy respectively due to lower repair and maintenance costs. Transmission reliability was at 99.98% for 1HFY17. Segment profit margin also expanded by +1.7ppts.

Utilities. Both segment revenue and profit grew by +15.1%yoy and +5.3%yoy respectively as higher demand was recorded coupled with higher product selling prices. In addition, production volume of electricity and steam increased compared to the year prior.

Regasification. Both segment revenue and profit performed comparatively well as revenue increased by +3.1%yoy and profit by +12.6%yoy. The commendable numbers are attributable to higher storage fees following weaker MYR/USD, lower operating costs and regasification plant reliability at 98%.

Impact on earnings. No changes to earnings forecasts.

Maintain NEUTRAL. We are maintaining our NEUTRAL stance on PetGas with an unchanged FY18 TP of RM20.00 per share. Our valuation is premised on 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 Aug 2017