Review

• Petronas Gas Berhad’s (PETGAS) 1HFY23 core profit of RM953.0mn (+10.1% YoY) came in within expectations at 48% and 51% of ours and consensus’ full-year forecasts respectively.

• PETGAS declared a second interim dividend of 16.0sen/share in 2QFY23 (2QFY22: 16.0sen/share), bringing the YTD DPS to 32.0sen (1HFY22: 32.0sen).

• 1HFY23/YoY: 1HFY23 revenue surged 11.8% YoY mainly driven by higher product prices from Utilities segment. Nonetheless, gross profit declined 3.0% YoY on the back of higher operating expenses in Gas Processing (depreciation) and Gas Transportation (higher fuel gas price) segment. PBT grew 3.2% YoY due to: i) higher share of profit from JV company; ii) higher interest income from fund investment; and iii) lower foreign exchange losses following early settlement of floating storage units at Sungai Udang LNG regasification terminal. Supported by lower tax expense from the absence of prosperity tax, PATMI jumped 12.7% YoY.

• QoQ: 2QFY23 revenue declined 2.2% QoQ mainly attributed to lower product prices (steam and industrial gases) in the Utilities segment in tandem with the lower fuel gas prices. Gross profit surged 19.1% QoQ on the back of lower fuel gas prices used in internal gas consumption. Note that Malaysia Reference Price (MRP) peaked at RM58.038/MMbtu in 1QFY23 and dropped to RM48.144/MMbtu in 2QFY23. Consequently, PBT surged 12.4% QoQ.

Impact

• No changes to our earnings forecasts.

Outlook

• PETGAS is currently negotiating a third term Gas Processing Agreement with Petronas and is expected to complete the negotiation by 3QFY23. Meanwhile, the group will make the final investment decision regarding LNG storage expansion at Pengerang by 2HFY23.

• Compared with 1HFY23, management expects 2HFY23 demand to remain stable while bottomline could be lifted by lower operating expenses from further decline in MRP. However, part of the earnings growth is expected to be offset by higher maintenance expenses.

• Overall, we believe that PETGAS will continue to register YoY improvement in earnings in the coming quarters on the back of absence of prosperity tax.

Valuation

• Maintain Buy with an unchanged target price of RM20.60/share based on sum-of-parts valuation.

Source: TA Research - 28 Aug 2023