‘Petronas Gas’ earnings growth to be capex driven’
KUCHING: Petronas Gas Bhd’s (PetGas) earnings growth is expected to be capital expenditure (capex) driven, analysts at MIDF Amanah Investment Bank Bhd (MIDF Research) said.
“Due to the nature of the business, PetGas operates on ‘Guaranteed Revenue Cap’ where its revenue is guaranteed based on the capacity reserve requirement set out by its parent company Petroliam Nasional Bhd (Petronas) regardless of the utilisation rate.
“That will however change as new shippers (players) are allowed to use PetGas’s services ( gas processing, gas transportation and regasification) under the Third Party Access (TPA) and Petronas is obliged to let go of unutilised reserve to other shippers should the need arise, which will in turn contribute to higher revenue for PetGas.
“In addition, under the new Incentive Based Regulation (IBR) framework, an expected rate of return on PetGas’s assets will be determined and benchmarked by the Energy Commission (EC),” the research team explained.
As such, it pointed out that investments in its capital expenditure (capex) is expected to drive PetGas’s growth going forward as it will increase the rate
Due to the nature of the business, PetGas operates on ‘Guaranteed Revenue Cap’ where its revenue is guaranteed based on the capacity reserve requirement set out by its parent company Petroliam Nasional Bhd (Petronas) regardless of the utilisation rate. MIDF Research
of return on its assets.
“PetGas is planning to invest in capex on its gas pipelines going forward as the part of its ongoing effort to refurbish and maintain the 30 years old pipeline,” it noted.
Meanwhile, it noted that PetGas announced that it has entered into the pilot period for the implementation of TPA under the Gas Supply Act. TPA is introduced by the EC as part of its ongoing effort to liberalise gas market in Malaysia.
“TPA’s impact on PetGas will be seen in three forms that is third party utilisation of Peninsular Gas Utilisation (PGU) pipelines and regasification infrastructures, regulation of tariff on gas transportation and regasification by EC, and licensing of gas transportation and regasification application by EC,” it added.
While the TPA pilot period has begun, MIDF Research noted that the migration of PetGas’ assetbased valuation from the current depreciated replacement cost (DRC) would happen gradually during Regulatory Period 1 and Regulatory Period 2 which starts in FY20.
“The full-migration to NBV is expected to complete in FY25. Hence, going forward we are expecting the tariff especially on its PGU to gradually decline with the progress of the migration,” it said.
All in, MIDF Research said it is reducing its earnings estimate for FY19F by 3.1 per cent to account for the expected lower revenue coming from the gas transportation segment as we input the new tariff of RM1.072 per GJ from RM1.248 per GJ.
“This new tariff however, is still based on the DRC therefore further downward revision of the tariff is expected once the Regulatory Period 1 comes on stream in FY20,” it added.
MIDF Research maintained its ‘neutral’ call and explained: “Our call is premised on the expected adverse impact on the revenue and earnings of PetGas arising from the new reduced tariff as PetGas gradually migrates to net book value (NBV) valuation from the current DRC method for its asset base.