INVESTMENT HIGHLIGHTS

• Petronas Gas Bhd (PetGas) 1QFY19 earnings grew by +6.7%yoy to RM515.5m

• Earnings supported by Gas Processing and Utilities segment due to 2nd term Gas Processing Agreement

• Gas transportation and Regasification segment revenue and profit declined in line with IBR implementation

• First interim dividend of 16sen declared

• Maintain NEUTRAL with a revised TP of RM17.23 per share

Higher contribution from Gas Processing and Utilities. PetGas’ 1QFY19 earnings grew by +6.7%yoy to RM515.5m despite a marginal revenue growth of +1.2%yoy. The marginal revenue growth can be largely attributed to increased contribution from gas processing and utilities arising from the higher reservation charge under the 2nd term Gas Processing Agreement (GPA) and upward fuel gas price revision respectively. The higher revenue was however, offset by lower revenue from gas transportation and regasification due to the new tariff under Incentive Based Regulation (IBR) which began in January this year. Nonetheless, PetGas’s earnings accounted for 28.6% and 27.6% of our and consensus full year FY19 earnings estimates respectively.

Strong asset reliability at close to 100%. The sustained sales growth is largely attributable to: (i) excellent plant and operational performance and reliability (close to 100% uptime for Gas Processing segment, near 100% uptime for Gas Transportation segment and near 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. Segment revenue grew to RM424.1m (+7.7%yoy), whilst profit jumped by +21.3%yoy attributable to higher reservation charge under the 2nd term GPA and lower OPEX. Additionally, the company’s gas processing plants achieved close to 100% asset reliability for the quarter.

Gas transportation. Both segment revenue and profit contracted by -13.2%yoy and -23.1%yoy respectively in line with the lower gas transportation tariff under IBR. Gas transmission reliability was at near 100%. As a result, segment profit margin declined slightly to 69%.

Source: MIDF Research - 29 May 2019