AmInvestment Bank upgrades Petronas Gas to ‘buy’ with higher SOP

KUALA LUMPUR: AmInvestment Bank has upgraded Petronas Gas ( PGas) to ‘buy’ from ‘hold’ with a higher sum-of-parts-based (SOP) fair value of RM21.30 per share from an earlier RM17.80, implying a financial year 2020 forecast (FY20F) price to earnings (PE) of 20 times.

AmInvest also maintains its earnings forecasts as the group’s 1HFY20 core net profit of RM1,047 million (excluding unrealised forex loss of RM131 million mainly from the Sungai Udang regasification terminal’s RGT US dollar debt) was in line with expectations, accounting for 50 per cent of its FY20F earnings.

“As a comparison, first half (1H) accounted for 49 to o55 per cent of financial year 2017 to 2019 (FY17 to FY19) core net profit. However, the results are above street’s FY20F earnings, which are 12 per cent below our projections,” it said.

On year-on-year comparison, it said the group’s 1HFY20 revenue rose by two per cent to RM2.8 billion as the adjustment to gas processing, liquefied natural gas ( LNG) regasification and utility rates more than offset the five per cent decrease in gas transportation earnings under the new International Business

Report (IBR) since the beginning of the year.

PGas declared a special dividend of 50 sen in addition to the second interim dividend of 16 sen, translating to a 1HFY20 payout ratio of 177 per cent.

“Assuming that the group will continue paying dividends as usual in 2H20, we have raised FY20F dividends per share (DPS) by 36 per cent to 98 sen, translating to a payout ratio of 92 per cent and a compelling yield of six per cent.

“For FY21F to FY24F onwards, we have raised DPS by 10 sen which implies a payout ratio of 75 to 78 per cent,” the research house said.

AmInvestment said the steady results reaffirmed decline of the FY20F earnings trajectory for the gas transportation segment under the Energy Commission’s gas transportation guidelines for two three-year regulatory periods of FY20F–FY25F.

“Quarter-on-quarter, the group’s 2QFY20 core net profit rose marginally to RM527 million (excluding unrealised forex gain of RM21 million) on a flattish revenue of RM1.4 billion. This was partly offset by a three percentage points (PPT) increase in effective tax rate to 20 per cent,” it said. — Bernama