PETRONAS GAS BHD

Price target: RM23

PETRONAS Gas Bhd’s (PetGas) first half (1H17) results are in line with Maybank Investment Bank (IB) Research’s expectations.

Both the research firm’s earnings forecast and target price of RM23 remained unchanged.

PetGas’ second quarter of 2017 (Q2’17) core net profit of RM418mil saw a rise of 3% year-on-year and a decline of 9% quarter-on-quarter.

This brought 1H17 core net profit to RM879mil, resulting in a 4% yearon-year rise. The 9% quarter-on-quarter decline was primarily due to a base effect as Q1’17 joint venture (JV) income was inflated by marked-to-market gains.

A 16-sen dividend per share was declared in the quarter, representing a 76% payout ratio.

Segmentals were generally in line, although all segments had a slight sequential earnings before interest and tax (EBIT) decline, possibly from increased repair and maintenance.

Maybank IB Research said its RM23 target price was based on discounted cash flow, assuming 6.8% weighted average costs of capital and 2% long-term growth.

The research firm believed that trade promotion authority would not adversely impact PetGas’ profitability.

In that context, and given the stock’s year-to-date underperformance by 12% year-to-date, “risk-reward is presently favourable,” said the research firm, reiterating its “buy” call on the counter.