Petronas  Gas’  1HFY14  core  net  profit  of  MYR856m  met  our  and consensus’ expectations,  with  growth  driven  mainly  by  contribution from  Kimanis  Power  Plant  (KPP).  However,  gas  processing  profit  was affected by higher depreciation. We expect its FY14 earnings to improve on  KPP  contribution  although  we  believe  this  has  largely  been  priced in. Maintain NEUTRAL, with an unchanged SOP-based FV of MYR21.98.
 
1HFY14  core  net  profit  up  19.8%.  Petronas Gas’ 1HFY14 core net profit  of  MYR856m  was  in  line  with  expectations,  accounting  for 51.2%/50.3% of our/consensus’ full-year  estimates.  As  expected,  this was boosted by two full quarters of contributions from the new  Malacca regasification  plant  after  it  commenced  operations  at  end-2QFY13.  The company  also  booked  in  higher  gas  transportation  revenue  which  grew 7.6%  in  the  same  period.  Normalised  1HFY14  core  net  profit  improved by  19.8%  y-o-y,  after  stripping  out  the  deferred  tax  asset  benefit  of MYR591.6m in 1QFY13.

Gas processing profit weaker in 2QFY14. Petronas Gas’ 2QFY14 core net  profit  improved  23.8%  y-o-y  and  4.4%  q-o-q  due  to:  i)  higher contribution  from  its  regasification  operations,  ii)  an  increase  in  gas transportation  activity,  and  iii)  revised  electricity  tariff  effective  from  Jan 2014. We note that the gas processing segment recorded a PBT decline of  19.8%  y-o-y  and  0.8%  q-o-q,  mainly  affected  by  higher  depreciation costs.  Separately,  the  company  declared  a  MYR0.20/share  (2QFY13: MYR0.15/share) dividend in 2QFY14. None was announced for 1QFY14.

 Commercialisation of KPP on track. The second generation unit of the 60%-owned 300MW (or 285MW nominal capacity) Kimanis Power Plant (KPP)  commenced  commercial  operations  in  July,  after  the  first  unit  in May. We  expect  the  last  unit  to  be  commissioned  before  year-end. We expect  Petronas Gas’ FY14  earnings  growth  to  be  underpinned  mainly by the first full-year earnings contribution from KPP.

Maintain  NEUTRAL,  MYR21.98  FV.  We  retain  our  FY14/15  earnings estimates  and  SOP-based  FV  of  MYR21.98.  We  think  the  long-term outlook  is  positive  as  gas  demand  continues  to  grow,  but  near-term catalysts are largely priced in at this stage.

Risks to our earnings forecasts include: i) plant efficiency falling below target,  hence  affecting  income  that  is  based  on  plant  performance,  ii) lower  gas  transportation  activity,  and  iii)  delayed  commercialisation  of KPP’s third generation unit.

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Company Profile

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

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Source: RHB