Petronas Gas (PetGas) reported its earnings down by -26.7% year-on-year (yoy) but a gain of +7.4% quarter on quarter (qoq) to RM425.8m. For the cumulative 9 months, earnings went down by -19.7%yoy to RM1.23b – which came in slightly below our expectation at 69% of full year earnings estimate.
Lower profit recorded was due to factors like higher operating cost relating to fuel gas and internal gas consumption costs, reduced impact of foreign exchange movement, and impact of higher effective tax rate from the imposition of Prosperity Tax.
Revenue rose up by +10% yoy. Revenue increased by +9.6% yoy and up 4.0% qoq to RM1.56b. For the cumulative 9MFY22, revenue gained +9.0% yoy to RM4.53b. Higher revenue was contributed by Utilities on the back of higher product prices in tandem with higher fuel gas price, and higher electricity sales volume.
Gas Processing. This segment earnings dropped by -6.2% yoy and – 1.3% qoq to RM229.9m, while revenue increased by +1.8% yoy but slipped marginally by -0.1%qoq to RM437.3m. For the cumulative 9 months, earnings slipped -0.9% yoy to RM695.2m, while revenue increased by +1.7% yoy to RM1.31b. Higher revenue was attributable to higher internal gas consumption incentive achieved, while the decline in results was due to higher operating cost. Gas Processing plants are working at nearly 100% reliability for 3QFY22.
Gas Transportation. Meanwhile, the gas transportation segment earnings dropped by -14.9% yoy and – 0.2% qoq to RM174.4m, while revenue dropped by -0.4% yoy but gained +1.1% qoq to RM293.6m. For 9MFY22, both earnings and revenue dropped, by -8.4% yoy to RM532.3m and by -0.2% yoy to RM872.8m respectively. Revenue decreased due to higher operating costs consequent to internal gas consumption cost and higher fuel gas prices. Nevertheless, the group’s pipeline network registered achieved 100% reliability in 3QFY22.
Utilities. This segment recorded a decline in earnings by -27.4% yoy but added +65% qoq to RM53.5m. Revenue increased +37.6%yoy and +12.9% qoq to RM476.7m. For the cumulative 9 months, profit sharply declined -50.8% yoy to RM107.4m. However, revenue increased by +38.4% yoy to RM1.29 billion.
Higher product prices in line with increased fuel gas price, as well as higher electricity sales volume contributed to the higher revenue. Product prices were higher in line with fuel gas price, which is based on Malaysia Reference Price (MRP) while electricity sales volume increased following commencement of electricity supply to the grid under the New Electricity Despatch Arrangement (NEDA) from August 2021 onwards. On the other hand, results declined due to tighter margins caused by the higher fuel gas cost. Utilities plants achieved 100% Product Delivery Reliability for steam, electricity, and industrial gases in 3QFY22.
Regasification segment reported a drop in earnings by -30.7% yoy but rose +1.6% qoq to RM186.2m. Meanwhile, revenue was flat on-year but gained a marginal +0.8% qoq to RM357 million. For the cumulative 9MFY22, earnings slipped by -9.8% yoy to RM544.4 million, while revenue was down -0.3% yoy to RM1.06billion. Profit declined over higher operating cost from internal gas consumption. The Group’s LNG regasification terminals in Sg. Udang, Melaka (RGTSU) and Pengerang, Johor (RGTP) sustained a strong reliability performance at close to 100% during 3QFY22.
Moving forward. In view of the declining risk impact of Covid-19, a hike in demand for gas and utilities is expected in the near term. PetGas anticipates that as the economy recovers, asset utilisation will increase as well.
Long-term contracts are also expected to support consistent income streams – notably for the Gas Processing, Gas Transportation, and Regasification segments.
During the reporting quarter, the group renewed a number of long-term Utilities contracts which helped offset the negative effects of rising fuel gas prices. However, MIDF research holds the opinion that PetGas’s performance until the end-year will continue to be impacted by the rising MRP, and volatility of Ringgit against USD.
FY22 third interim dividend at 18sen. The group has announced its second interim dividend of 18 sen per share,
amounting to RM356.2m; payable on 12 Dec CY22.
Revised FY22-23 earnings forecast. In consideration of PetGas’s 3QFY22 results slightly missing the research house’s expectation, hence it has revised its FY22 and FY23 earnings estimates downwards by -5% and -6% respectively. As such, it alters the target price (TP) from RM17.65 to RM17.27 per share, which is based on pegging a PER of 18.8x to the revised EPS23 of 91.6sen. The PER is based on the midstream gas industry’s 5-year average.
MIDF has reiterated its NEUTRAL rating on PetGas with revised TP. The gas market continues to be unpredictable and volatile, more so with the upcoming implementation of Russian energy sanctions as well as demand slowdown from China over its Covid-19 policies.
Additionally, the volatility of foreign exchange rates, the cost of raw materials, and the price of fuel gas in the region continue to exert inflationary pressures. Nevertheless, over the longer-term, it is believed that PetGas will be able to weather the setbacks given its long-term contracts and prospected bids, sustained, positive revenue growth, and near 100% plant utilisation across all its business segments.
