INVESTMENT HIGHLIGHTS

• Petronas Gas Bhd (PetGas) 4QFY17 earnings grew by +4.7%yoy to RM486.7m

• FY17 earnings sustained at RM1,792.7m (+3.1%yoy)

• Gas transportation and regasification segment recorded growth for both revenue and operation profit

• Regasification revenue boost from Pengerang Regasification

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

Sustained earnings on record revenue. PetGas’ 4QFY17 earnings grew by +4.7%yoy to RM486.7m premised on stable revenue growth of +13.0%yoy to RM1.3b (highest ever recorded). The record sale was largely attributable to strong growth from the Pengerang Regasification facility which began operations in the quarter. In addition, higher selling prices and higher performance based income supported revenue and earnings growth. Cumulative FY17 earnings of RM1,792.7m accounted for 97.8% and 102.1% of our and consensus full year FY17 earnings estimates respectively.

Sustained sales growth. The sustained sales growth is largely attributable to: (i) excellent plant and operational performance and reliability (99% uptime for Gas Processing segment, 100% uptime for Gas Transportation segment and 99% uptime for Regasification segment); (ii) contribution of Performance Based Scheme from Gas Processing segment and; (iii) favourable selling prices for Gas Utility segment.

Gas processing. Although segment revenue sustained at RM1,557.5m, segment profit declined marginally by -1.9%yoy to RM636.2m largely attributable to high depreciation expenses from the completion of several turnaround activities. Overall Gas Processing liquid plant extraction performance was sustained above target. The plant reliability performance is at 99%.

Gas transportation. Both segment revenue and profit expanded by +0.6%yoy and +0.5%yoy respectively as gas transmission reliability was at near 100%. Segment profit margin remains stable at 74.7%.

Utilities. Segment revenue staged an increase of +9.2%yoy to RM1,167.5m but segment profit declined by -4.5%yoy as favourable selling prices and higher demand for electricity and steam was negated by higher cost of sales.

Regasification. Both segment revenue and profit were boosted by the operational commencement of the Pengerang Regasification facility. Revenue and profit increased by +22.6%yoy and +32%yoy respectively. Plant reliability in Sungai Udang was 99%.

Impact on earnings. No changes to earnings forecasts.

Maintain BUY. We are maintaining our BUY recommendation on PetGas with an unchanged TP of RM20.00 as we are of the opinion that the company will continue to perform premised on: (i) strong and diversified income stream; (ii) expected strong national GDP 5.5% for FY18 and; (iii) strong potential capital upside. 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 - 27 Feb 2018