Petronas Gas’ 1H16 core profit meets expectations

KUALA LUMPUR: Petronas Gas Bhd’s (Petronas Gas) first half of 2016 (1H16) core profit met expectations, as did the group’s second interim dividend.

In a filing on Bursa Malaysia, Petronas Gas revealed that profit for the six months period ended June 30, 2017 improved by five per cent or RM38.4 million to RM889.1 million. At 51 per cent and 49 per cent of house and street’s financial year 2017 (FY17) estimates, respectively, 1H17 core profit of RM878.6 million came within the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) expectations.

Petronas Gas’ 1HFY17 core net profit of RM879 million was also within AmInvestment Bank Bhd’s (AmInvestment Bank) expectations, accounting for 49 per cent of the research firm’s FY17F earnings and street’s RM1.79 billion, similar to the proportion of 1HFY16 to FY16.

The group declared a second interim dividend of 16 sen, which raised 1HFY17 dividend per share (DPS) by three sen to 32 sen, which was also 49 per cent of AmInvestment Bank’s forecast.

On a side note, Kenanga Research highlighted that share price of Petronas Gas came under pressure for quite some time on concerns of a new Third Party Access (TPA) framework that could severely impact its earnings on lower rate while processing income would be lower as customers may opt to import their own gas supply.

“Although there is less than half a year to January 2018 when the TPA is implemented, the authority has yet to finalise the mechanism,” the research arm said.

In Kenanga Research’s opinion, being a Petroliam Nasional Bhd (Petronas) company, government may protect Petronas Gas’ interest to ensure earnings certainty.

“Moreover, based on experiences of imbalance cost pass through (ICPT) and gas cost pass through (GCPT) mechanisms, Tenaga Nasional Bhd and Gas Malaysia Bhd suffered no negative impact but instead the fuel and gas costs are passed through to end-users eventually.

“As such, the TPA could turn out neutral to Petronas Gas.”

All in, Kenanga Research maintained that the sell-down on the stock previously could be overdone as it has gone beyond the worst-case scenario with negative impact on sum of parts (SoP) by eight per cent and affect FY18 earnings and beyond also by circa eight per cent, if any.

Thus, the research arm maintained its ‘outperform’ rating on the stock with unchanged price target of RM2 per share.

As for AmInvestment Bank, the research firm maintained Petronas Gas’ FY17F-FY19F as the group’s 1HFY17 core net profit met expectations.

AmInvestment Bank recalled that it projected an earnings decline of three per cent in FY19F based on assumptions of a lower regulated asset-based return (ROA) for the overall gas operations from 13 per cent to 11 per cent, which was part of the Energy Commission’s progression to gradually reduce ROAs to seven to eight per cent.

AmInvestment Bank thus maintained its ‘sell’ recommendation and SoP-based fair value of RM16.65 per share for Petronas Gas.