Murky outlook for PetGas as uncertainties over gas transport tariffs mount

KUCHING: Petronas Gas Bhd’s ( Petronas Gas) business outlook continues to remain murky as uncertainties over gas transportation tariffs continue to mount.

In a securit ies repor t , the research arm of Affin Hwang Investment Bank Bhd ( Af finHwang Capital) saw that Petronas Gas is currently operating under the new gas transportation tariff in 2019.

This is on the back of the gas player still in the midst of submitting a proposed tariff for 2020 to 2022 to the Energy Commission fol lowing the implementation of third-party access ( TPS).

Moreover, Petronas Gas is also understood to be gradually migrating from a depreciated replacement cost approach to net book value as the regulated asset base ( RAB).

The new approach will have a greater impact on the gas transportation business due to lower net book value of the group’s Peninsular Gas Utilisation pipeline network as compared to its regasification assets.

“As a result of the uncertainties over the lack of clarity with regards to the gas transportation tariffs, we cut earnings to reflect lower tariffs at the gas transportation business,” the research arm said, adding that there could still earnings downside risk as a result of the gradual change in the RAB computation, albeit marginal on our revised forecasts,

“On the other hand, the details regasification tariff has already been made known as the Energy Comission has announced that they would be lowering the incentive- based regulation ( IBR) tariff following the TPA implementation for Peninsular gas utilisation from RM1.248/ GJ to RM1.072/ GJ, Sungai Udang regasification terminal to RM3.518/mmBtu and Pengerang regasification terminal to US$ 0.637/ mmBtu.”

Considering the murkiness of the gas transportation tariff and the lowering of the IBR tariff, Affin Hwang Capital is cutting their 2019 to 2020 estimates earnings for PGB by 4 and 8 per cent respectively.

They maintain their hold call on the stock with a lower target price of RM17.30 per share.