Petronas  Gas’  FY14  results  met  expectations.  We  maintain  our NEUTRAL call but raise our FY15 net profit  forecast  by 6% and  TP  by2%  to  MYR22.40  (from  MYR22.00).  Petronas  Gas’  earnings  growth  is likely  to  be  flattish  until  maiden  contribution  from  the  Pengerang regasification  terminal  kicks  in  by  FY18.  Nonetheless,  it  is  still appealing to certain investors who like its earnings defensiveness.

FY14  PBT  grew  by  24% YoY.  Petronas Gas’ FY14 net  profit  met  ourforecast  and  consensus’  estimates.  Its  FY14  PBT  grew  by  24%  YoY, driven by: i) the first full-year contribution from its new regasification plant in  Melaka  (vis-à-vis  only  a  3-month  contribution  in  FY13);  ii)  increased gas transportation volumes;  iii) a higher electricity tariff from Jan 2014, and iv) maiden contribution from  its  60%-owned 300MW Kimanis Power Plant (KPP). This was partially offset by lower gas processing profits.

Pengerang regasification the next growth catalyst.  Over the  medium term,  Petronas  Gas’  earnings  growth  will  be  driven  by  its  65%-owned MYR2.7bn  regasification  terminal  project  in  Pengerang,  Johor. Construction for the plant with an annual capacity of 3.5m tonnes (vis-àvis 3.8m tonnes of the existing Melaka regasification terminal) will start in 2Q15, with a targeted commercial operations date by 4Q17.

Forecasts. We raise our FY15-16 net profit forecasts by 6.4% and 0.4% respectively and update our balance sheet numbers.

Risks: i) missing efficiency targets, resulting in lower performance-based incomes;  ii)  lower  gas  transportation  volumes;  and  iii)  delays  in  the completion of the Pengerang regasification terminal.

Maintain  NEUTRAL.  Petronas  Gas’  earnings  growth  is  likely  to  be flattish  in  FY15F-17F  until  maiden  contribution  from  the  Pengerang regasification terminal kicks  in by FY18F. We like Petronas Gas for its earnings  defensiveness  and  strong  long-term  fundamentals  backed  by continued industrialisation in Malaysia, and hence rising demand for gas. We  tweak  our  SOP-based  TP  up  by  2%  to  MYR22.40  (see  Figure  2)from MYR22.00 after we update our balance sheet numbers.

Source: AmeSecurities