Impact on PetGas seen

Transportation

PETALING JAYA: CGSCIMB said the coming plans to liberalise the gas market in Malaysia under the country’s Economic Transformation Programme (ETP) could affect Petronas Gas Bhd’s (PetGas) regasification and transportation divisions.

The research house cited Petronas Gas, which it had met, as saying that the regulator may be using book value as the regulated asset base (RAB) under the Third Party Access (TPA) system, instead of the presently used depreciated replacement cost (DRC).

The TPA will allow any party to have access to and utilise the gas facilities available in Malaysia.

“The changes could take place through a staggered transition over the years to minimise the earnings impact.

“The group’s regasification and transportation divisions (which cumulatively makes up a total circa 67% of first half of 2018’s gross profit) and our rough analysis reveals a potential 25% earnings downside if book value is used as the RAB,” CGSCIMB said in its report.

There are three types of gas facilities that fall under the scope of the TPA, namely regasification terminals, transmission pipelines and distribution pipelines, it said.

“Implemented in January 2018, TPA’s current tariffs for the utilisation of the Peninsular Gas Utilisation system, Regasification Terminal Sungai Udang and Regasification Terminal Pengerang will remain until end-2018,” it said.

“The current gas transportation tariff is RM1.248/GJ in Peninsular Malaysia, while the current tariff for regasification has not been disclosed. We expect the new tariffs under the TPA to be revealed on end-Nov 2018,” it added.

CGSCIMB said Petronas Gas had been paying out 70% of its net profit as dividend for the past two years in spite of not having a formal dividend policy.

“Despite the potential earnings risk from TPA, management has guided that the group is looking to maintain the absolute dividessnd amount to reward its shareholders.

“Assuming that the TPA is implemented in stages, we believe Petronas Gas should be able to maintain the absolute amount of dividends by increasing its dividend payout ratio,” it said.

CGSCIMB retained its target price for the stock at RM18.10, based on a 17.8 times forecasted 2019 price to earnings ratio (PER) which is a 20% discount to its five-year historical mean PER.

“The 20% discount is the midpoint of the earnings downside in our best and worst-case scenarios.

“We keep our hold call despite the potential FY18-20 forecast dividend yields of 4%, as we see earnings risk beyond 2018 arising from the TPA’s tariff revision,” it added.