PTG’s  MYR1,626.8m  9M13 core net profit exceeds our and consensus full-year expectations. This  was  due to the recognition of deferred tax assets  arising  from  an  investment  tax  allowance  granted  for  its  LNG regasification terminal  in Melaka.  To incorporate  this, we upgrade our FY13/14  forecasts  by  35%/9%  and  revise  upwards  our  DCF-derived MYR22.14  FV  (from  MYR18.66).  However,  we  maintain  our  NEUTRAL call given PTG’s lofty valuations.

• 9M13  topline  grew  by  7.4%.  PTG’s  liquefied  natural  gas  (LNG) regasification  terminal  in  Sungai  Udang,  Melaka,  which  commenced operations in 2Q13, was the primary reason for the 7.4% growth in 9M13 revenue. This  business  segment recorded MYR161.8m and MYR92.3m in 3Q13 revenue and profit respectively – a turnaround from the previous quarter’s loss of MYR2.8m on the back of MYR17.4m in revenue.
• 9M13 core net profit grew by 51.8%.  PTG’s  effective tax rate for 9M13 was significantly lower than the statutory tax rate of 25%. It recognised MYR598.6m in deferred tax assets  during the period  under review  from the investment tax allowance granted to its LNG regasi fication terminal. Excluding  the  impact  of  this,  PTG’s  effective  tax  rates  for  3Q13  and 9M13 stood at 23% and 27% respectively.
• Lacklustre performance from other business segments.  Other than its  regasification  segment,  PTG’s  gas  transportation  division  was  the only  other  business  to  show  an  improvement  in  9M13. This was  due to higher transportation capacity booked by Petronas.  The company’s gas processing  revenue  declined  marginally  because  of  the  lower performance-based structure income for ethane and butane.
• Maintain NEUTRAL with a revised FV of MYR22.14. We revisited and revamped  our  earnings  model  to  better  reflect  PTG’s  maiden  positive contribution  from  its  Sungai  Udang  terminal.  We  also  revised  our FY13/14  forecasts  by  35%/9%  to  incorporate  lower  taxation.  We therefore  revise  upwards  our  DCF-derived  FV  to  MYR22.14  (from MYR18.66),  but maintain our NEUTRAL call on this stock due to its lofty valuation of 27.6x FY14F PE.

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Company Profile
Petronas Gas (PTG) has a monopoly on the processing and transmitting of natural gas in West Malaysia.

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Source: RHB