PGAS has entered into a new 20-year GSA effective today up to 31 Dec 2033.  The  new  GSA  includes  GTA  Sabah  for  the  additional  gas transportation services to be provided by Petronas in Kimanis. Butane, ethane  &  propane  income  will  now  be  subject  to  a  performance-based structure  (PBS).  We  maintain  our  FY15/FY16  forecasts  as  the  changes in terms are broadly neutral. Maintain NEUTRAL and MYR21.98 FV.   
 
New agreements to be effective by today. Petronas Gas (PGAS) has entered into a new 20-year gas sales agreements (GSA) with Petronas, effective  today  until  31  Dec  2033,  for  the  following:  i)  a  gas  processing agreement (GPA); ii) a gas transportation agreements (GTA) comprising GTA  Peninsular  Malaysia,  GTA  Sabah  and  GTA  Sarawak;  and  iii)  an agent services agreement (ASA). This is following the expiry of previous agreements on 31 March 2014. The new GSA includes the GTA Sabah for the additional gas transportation services provided to Petronas for its customers in Kimanis, which started in Jan 2014.

The stark difference was the application of PBS structure. Instead of a fixed rate for butane and a percentage to sales margin for propane and ethane, income from these products will be based on a PBS. Income will revolve around the efficiency in plant performance benchmarked against agreed targets (see Figure 1).

Revision  after  every  5-year  term.  The  new  agreements  allow  for  a revision to the remuneration terms prior to the expiry of each 5-year term (except  for  the  first  term):  i)  first  term:  1  Apr  2014  to  31  Dec  2018,  ii) second term: 1 Jan 2019 to 31 Dec 2023, iii) third term: 1 Jan 2024 to 31 Dec 2028; and iv) fourth term: 1 Jan 2029 to 31 Dec 2033.   

Maintain  NEUTRAL  with  unchanged  SOP-based  FV  of  MYR21.98. We keep our FY14/15 earnings estimates as the changes in agreement terms  are  not  significant  to  compel  forecast  revisions.  We  understand that PGAS will no longer be affected by the fluctuation in butane, ethane and  propane  prices.  Instead,  it  will  be  remunerated  according  to  the efficiency of its operations. We maintain NEUTRAL on this stock with an 
unchanged SOP-based FV of MYR21.98.

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

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Source: RHB