New update no rerating catalyst for Petronas Gas

TA Research’s key assumptions for its estimates included project internal rate of return (IRR) of nine per cent, earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 40 per cent, 20:80 debt:equity financing, and long-term offtake supply contract of 20 years.

“We are neutral on this announcement at this juncture and do not view it as an earnings rerating catalyst,” the research arm said.

“This given the smallish scale of the project, coupled with potential subdued returns, nevertheless, we do not discount potential upside when more details are unveiled.”

As such, TA Research maintained earnings forecasts pending disclosure of more details.

The research arm also maintained its ‘sell’ call on Petronas Gas with unchanged SOTP target price of RM19.70 per share.

As for RHB Research, in the medium term, the research house looks forward to Petronas Gas’ earnings growth being driven by the group’s new regasification terminal project in Pengerang.

“Worth RM2.7 billion, the 65 per cent- owned facility has annual capacity of 3.5 million tonnes and is due to be commissioned by 4Q17,” it said.

Despite its positive view on the SHA execution, RHB Research also retained its ‘ neutral’ recommendation on Petronas Gas and SOP- derived target price of RM22.55 per share.

The research house noted that the mild target price enhancement seems to indicate that the ASU has been somewhat priced in.

However, its target price is subjected to further clarity from the management on details of the ASU business.

“We continue to like Petronas Gas for its defensive earnings and good longterm fundamentals, which are backed by the on- going industrialisation in Malaysia that is driving the demand for gas,” RHB Research said.