Petronas  Gas’  1QFY14  core  net  profit  of  MYR418.7m  was  in  line  with our  and  street  estimates.  Revenue  grew  15.8%  y-o-y/2.5%  q-o-q, attributable  to  the  regasification  plant  that  commenced  operations  in 2QFY13.  Utilities  division  improved  on  a  q-o-q  basis  due  to  higher offtake of gas by petrochemical plants. Operations expected to remain stable even under the new GSA. Maintain NEUTRAL with FV MYR21.98.

• Core net profit in line with estimates. Petronas Gas’ 1QFY14 core net profit of MYR418.7m was in  line with our and street  estimates, making up  25%/24.7%  of  our/consensus  FY14  full-year  forecasts.  1QFY14 overall revenue  improved  15.8% y-o-y/2.5% q-o-q, mainly attributable to the  regasification  operation  in  Sungai  Udang,  Melaka,  that  had  only commenced  operations  in  2QFY13.  Effective  tax  rate  showed normalisation at 23%  in 1Q14  vs 16.5% in 4QFY13 (25.8% in 1QFY13),in the absence of tax benefits arising from the regasification plant.   
• Decent improvement in operations.  The overall performance of each business division showed  decent  improvement in 1QFY14. The utilities division  improved  tremendously  on  a  q-o-q  basis,  due  to  the  reduced planned  turnaround  maintenance  activities  in  1QFY14  by  the petrochemical  plants.  Management  believes  that  such  a  condition  will persist  throughout  FY14.  Recall  that  Petronas  Chemicals  Group (PCHEM  MK,  NEUTRAL,  FV:  MYR6.48)  –  one  of  Petronas  Gas’ customers  –  had  a  major turnaround maintenance programme in CY13, which we believe to have affected the said division.  
• Operations to remain stable even under the new GSA.  Management stressed  that  its  operations  would  remain  stable  even  under  the  new terms  of  the  20-year  gas  sales  agreement  (GSA),  which  became effective  in  early  April.  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 performance-based structure. Income would revolve around the efficiency in plant perfo rmance benchmarked against agreed targets, which we believe may provide earnings upside.   
• Maintain NEUTRAL with FV MYR21.98.  We make no changes to our FY14/FY15  forecasts  as  operations  are  not  expected  to  be  affected significantly  by the new GSA terms.  Hence, we maintain our NEUTRAL call with unchanged SOP-based FV of MYR21.98.

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

Source: RHB