Gas Malaysia, Petronas Gas RP2 Performs Above Expectations, Says Maybank IB

Petronas Gas Bhd’s (PetGas) second regulatory period (RP2) tariff outcome appears better relative to expectations, with higher-than-expected transport tariffs offsetting lower Pengerang regas tariffs, said Maybank Investment Bank.

In a note on Monday (Jan 9), the research house said while regulatory details remained undisclosed as at the time of writing, it cited that the transport tariff for RP2 (2023-2025) had been set at RM1.069 GJ per day, a 5.8% decrease from RM1.129 GJ per day in RP1.

“This is better than our expectations of an about 20% decline (recall that there is a scheduled regulated asset base step-down in place). 

“Regulatory details have not been disclosed, thus it is unclear whether the higher-than-expected tariff is due to weighted average cost of capital/capital expenditure (earnings-accretive) or operating expenditure (earnings-neutral),” it said.

Meanwhile, RP2 regas tariffs have been set at RM3.455 GJ per day (unchanged) for Melaka plants, and RM3.165 GJ per day (-9.2%) for the Pengerang plants, it added.

Maybank IB maintained its “hold” call, with a higher target price (TP) of RM17.40 (+2%), following its initial round of earnings revisions for PetGas.

Among the gas utilities, it prefers Gas Malaysia Bhd, with a “buy” recommendation and a TP of RM3.80, due to the unchanged distribution base tariff.

“The distribution portion of Gas Malaysia’s spread is thus unchanged, meaning overall spreads will continue to be driven by gas prices.

“We expect spreads to remain elevated in the fourth quarter of 2022 (4Q2022) and 1Q2023 on higher gas prices. Gas Malaysia’s distribution base tariff for the new regulatory period (2023-2025) will be maintained at RM1.573 GJ per day (or about RM1.88 per mmBTU in our estimate),” it said.

Separately, the implementation throughout the whole of 2023 for the return of surplus revenue will have no impact on Gas Malaysia’s profit and loss, as the company accrues revenue-cap adjustments every quarter.

“With the non-punitive tariff outcome, the concern over a potential one-off step-down in spreads has been cleared. We expect sequentially higher earnings for 4Q2022 and 1Q2023, with gas prices still trending up, and the distribution segment insulated from volume softness.”

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