Petronas Gas is embarking on the MYR2.7bn Pengerang regasification terminal project. While we are positive on the news, we maintain our NEUTRAL call, earnings forecasts and TP of MYR21.98 (1.5% upside), as the project will only start contributing from FY18. We believe the market has priced in near-term earnings catalysts, ie contributions from a new power plant in Sabah and a regasification terminal in Melaka.  

Pengerang regasification project is good to go.  Petronas Gas has decided to go ahead with the MYR2.7bn regasification terminal project at the Pengerang Deep Water Terminal, which is an integral part of the MYR89bn Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang, Johor. The project will be carried out via a 65:25:10 JV called Pengerang LNG (Two) SB between Petronas Gas, Dialog Group (DLG MK, BUY, TP: MYR2.00) and the Johor state government. Petronas Gas’ share of the project cost is MYR2bn. Construction for the plant with an annual capacity of 35m tonnes will start in 2Q15 with a targeted commercial operations date by 4Q17. Petronas Gas has awarded a MYR1.5bn engineering, procurement, construction and commissioning contract for the plant to a Samsung-Whessoe-STS-SCTKL consortium. Separately, Petronas Gas has entered into heads of agreement with Linde (M) SB to “pursue possibility of the development” of an air separation unit on a JV basis in Pengerang, to be operational by 4Q18.

Forecasts. We are positive on Petronas Gas’ latest venture that will underpin its earnings growth over the longer term. The MYR2bn capital outlay will result in Petronas Gas having a net debt and gearing of MYR1.9bn and 0.18x respectively that is still highly manageable, from a net cash of MYR69m as at end-3Q14. We maintain our earnings forecasts as the project will only start contributing from FY18.

Maintain NEUTRAL.  We believe the market has priced in near-term earnings catalysts of Petronas Gas, ie contributions from a new 300MW power plant in Kimanis, Sabah, and a regasification terminal in Sg Udang, Melaka. However, its long-term outlook remains favourable, backed by continued industrialisation in Malaysia, and hence rising demand for gas. We maintain our SOP-based TP of MYR21.98 (see Figure 1).

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Source: RHB