Petronas Gas: Business as usual under RP2
KUCHING: Analysts have mixed outlooks on Petronas Gas bhd (Petronas Gas) after the second regulatory period (RP2).
The team at CGS-CIMB Research reiterated its “regulated capital expenditure (capex) is guided to be above RM2 billion” based on the incentive-based regulation (IBR) Regulatory Period 2 (RP2) 2023 to 2025 tariffs.
The bulk of the capex will be allocated to peninsular gas utilisation (PGU), it said, which is significantly higher than RP1, based on a briefing by PetGas recently.
However, it said PetGas did not disclose its RP2 regulated return but has guided that it is similar to other utility players under regulation.
“We gather that overall revenue reduction from PGU under RP2 will likely come to only 2 per cent instead of 5.8 per cent versus RP1,” the research house said in a note. It is maintaining its “hold” call for PetGas with a target price of RM16.90.
Kenanga Investment Bank Bhd (Kenanga Research) affirmed that the RP2 has neutral impact given that the expected lower WACC will be negated by higher RAB while the gas price and forex pass-through help to stabilise earnings.
“We see mildly positive impact from the new tariff as Tariff T of PGU came slightly higher than our expectations. To align with the new tariffs coupled with new component of Tariff C from 2023, we upgraded FY23F earnings slightly by 0.5 per cent while keeping FY22’s unchanged.
“We continue to like Petronas Gas for its earnings stability of which 90 per cent is safeguarded by the IBR framework, and the RP2 has reinforced its earnings stability, anchoring decent dividend yields of four to five per cent.
“However, its valuation is already rich at current levels.”
AmInvestment Bank Bhd (AmInvestment Bank) noted a silver lining which is the introduction of several new initiatives to cushion the negative impact of lower tariffs.
These include the yearly adjustment to annual revenue requirement (ARR), which allows cost pass-through of higher-than-projected internal gas consumption (IGC) due to volatile gas prices.
“This means that the group will be able to recover any operating expense overruns from higher IGC via upward adjustment of tariffs in subsequent years.
“All in, we are more upbeat on the group’s future prospects from the introduction of cost passthrough for IGC and forex as well as the Tariff C, which should largely cushion the negative impact from lower tariffs.
“Furthermore, we also foresee better earnings outlook in the utilities segment, anchored by renewals of longterm contracts that help to partly mitigate higher fuel gas costs.”