PETRONAS GAS : HOLD at RM10.40, TP of RM10.80

Strong quarter for Petronas Gas

Petronas Gas Bhd
(Aug 30, RM10.50)
Maintain hold at RM10.40 with a revised target price of RM10.80 (from RM10.50): Petronas Gas’ revenue jumped 11% year-on-year (y-o-y) in 1QFY11ended June 30 to RM872.6 million, driven by higher throughput services fee collected under the new gas processing and transmission agreement (GPTA), as well as improved sale of industrial utilities.

The new GPTA, which clearly demarcates the gas processing and transport remuneration structure, took effect from April 1. The throughput business saw its gross profit margin improve significantly to 66% (from 47% previously) as Petronas Gas benefited from the free internal gas consumption (IGC) provided for under the new terms, which led to a higher net profit of RM382.8 million (+42%) in 1QFY11. It did not declare any dividend.

Petronas Gas’ 1QFY11 net profit of RM382.8 million was above expectation, making up 34% of our FY11 earnings forecast. We had underestimated the cost savings derived from the IGC and the recovery of the petrochemical complex in Kerteh and Gebeng.

Accordingly, we have revised upward our FY11 to FY13 earnings forecast by 22% to 24%.

However, the higher earnings may not necessary translate into a higher dividend payout as Petronas Gas may take up a role in the RM3 billion regassification plant in Melaka. Petronas Gas is currently undertaking a study on the liquified natural gas import terminal.

We maintain our hold call the counter, but raise our discounted cash flow (DCF)-derived target price to RM10.80 to reflect the earnings upgrade. Our DCF valuation is based on a weighted average cost of capital of 7.5%. Petronas Gas is currently trading at CY2011 PER and P/BV of 15 times and 2.4 times against regional peers’ average of 16 times and 2.9 times respectively. — HwangDBS Vickers Research, Aug 30


This article appeared in The Edge Financial Daily, September 1, 2010.