KLSE (MYR): PETGAS (6033)
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16.42 - 16.58
Posted by observatory > 2021-10-20 21:50 | Report Abuse
Next is cost of equity (COE).
PetGas is stable company, a reliable dividend stock with good corporate governance. It enjoys gas distribution monopoly. Its revenue and profits are shielded from gas price fluctuation as it’s largely determined by Regulatory Asset Based pricing, and the long term gas processing agreement with its parent company Petronas.
Besides the demand for natural gas is likely to persist for at least several more decades as gas is the cleanest form of fossil energy. The Energy Commission projects gas demand to increase from 2030 onwards by replacing coal in power generation.
Based on above I will assign my own standard of “good” company COE which is 8%.
Cross check my choice against CAPM model:
Beta = 0.75 (average of Reuters 0.87, and Market Watch 0.65)
Risk free rate = 3.6% (based on latest Malaysia government 10 year bond yield)
Equity risk premium = 5.9% (based on Damodaran)
CAPM COE = 3.6% + 0.75*5.9% = 8%, which coincidentally fits almost perfectly at this moment.