Mixed views on Petronas Gas’ deal with Linde M’sia
KUCHING: There are mixed views on Petronas Gas Bhd’s (Petronas Gas) shareholders agreement with Linde (Malaysia) Sdn Bhd (Linde Malaysia), with some analysts positive on the announcements while others remain neutral.
In a filing on Bursa Malaysia, Petronas Gas announced a SHA with Linde Malaysia for the establishment of a joint venture company for the development of an air separation unit (ASU) plant in Pengerang Integrated Complex (PIC) in Pengerang, Johor.
“The total project cost is estimated at US$172 million with Petronas Gas’ portion of the cost amounting to an estimated US$88 million.
“The source of funding for the project is expected to be via a combination of equity and debt from the respective parties,” the group said.
Petronas Gas added that the project is expected to commence construction activities by the third quarter of 2016 (3Q16) and to achieve commercial operation by 4Q18.
RHB Research Institute Sdn Bhd (RHB Research) viewed the SHA positively, as it provides structural growth to Petronas Gas’ already defensive earnings.
“Based on some past figures taken from the Malaysian Oxygen, the operating profit margin that could be achieved for the ASU division is circa 20 per cent,” the research house said.
“With the assumption of an annual return of 10 per cent to the investment costs taken over a 20-year period and a long-term growth rate of three per cent, the ASU could boost our target price by around RM0.24 or one per cent.”
On the other hand, the research arm of TA Securities Holdings Bhd (TA Research) said this project did not come as a surprise as it has been well flagged by the management.
While details remained scant at this juncture, TA Research recalled that earlier in February 2016, management had indicated muted high-single digit project returns.
“This is not a new business segment for Petronas Gas as the group is currently supplying industrial gases from its integrated petrochemical complexes at Kerteh and Gebeng,” the research arm said.
According to TA Research, Petronas Gas’ robust balance sheet with net cash position and cash pile of RM1.4 billion is more than adequate to finance its 51 per cent share of project costs (RM355 million).
The research arm further recalled that in January 2016, the group secured a US$500 million term loan with Mizuho Bank to finance capex requirements.
In addition, it believed participation of established player Linde will likely limit execution risks for the project.
From its back-of the envelope calculations, TA Research estimated average bottomline accretion of one per cent from 2019 to 2031.
The research arm said that this will result in an uplift of five sen per share (up 0.3 per cent) to its sum of the parts (SOTP) target price of RM19.70 per share. Turn to Page B4, Col 4