INVESTMENT HIGHLIGHTS

• Petronas Gas Bhd (PetGas) 1QFY18 earnings grew by +4.3%yoy to RM483.2m

• Earnings supported by strong revenue growth of +15.5%

• All business segments recorded sales growth

• Regasification revenue and earnings boost from Pengerang Regasification

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

Strong asset reliability at 99%. PetGas’ 1QFY18 earnings grew by +4.3%yoy to RM483.2m premised on stable revenue growth of +15.8%yoy to RM1.35b (another record high). The record sale was largely attributable to strong growth from the Pengerang Regasification facility which began operations mid-4QFY17. In addition, high asset reliability above 99% coupled with higher selling prices and higher performance based income supported revenue and earnings growth. 3MFY18 earnings accounted for 25.8% and 25.6% of our and consensus full year FY18 earnings estimates respectively.

Sustained sales growth. The sustained sales growth is largely attributable to: (i) excellent plant and operational performance and reliability (100% uptime for Gas Processing segment, 100% uptime for Gas Transportation segment and 100% 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 grew sustained at RM393.8m (+1.0%yoy), segment profit declined by -8.7%yoy due to higher depreciation expenses from statutory turnaround activities and higher overheads. Nonetheless, the company’s gas processing plants achieved 100% asset reliability for the quarter. Profit margin expanded by +3ppts on a quarterly sequential basis.

Gas transportation. Both segment revenue and profit expanded by +3.1%yoy and +2.7%yoy respectively as gas transmission reliability was at near 100%. Segment profit margin remains stable at 77.9%.

Utilities. Segment revenue staged an increase of +11.0%yoy to RM323.7m and segment profit increased by +5.5%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 +82.4%yoy and +124.2%yoy respectively. Plant reliability in Sungai Udang and Pengerang was close to 100%.

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 - 18 May 2018