Long-term contracts augur well for Petgas

Despite challenging outlook, analysts remain upbeat

“Over the medium term, its earnings growth will be driven by a new Rm541mil gas pipeline project to cater to an independent power producer.” Kenanga Research

PETALING JAYA: PETRONAS Gas Bhd, (Petgas) which saw its net profit decline in the second quarter of the year on higher gas prices, is anticipating weaker earnings for the financial year 2022 (FY22) to FY24.

Despite a challenging outlook, analysts are still upbeat on the gas merchant’s earnings due to its long-term contracts, among others.

Kenanga Research said it is cutting its FY22 and FY23 net profit by 9% and 7%, respectively, to reflect the adverse factors in the first half 2022 results.

Correspondingly, it said it is also cutting its FY22 and FY23 dividend forecasts by about 8% each to 77 sen and 81 sen (from 84 sen and 88 sen) based on the same 85% payout ratio.

“We continue to like the company for its earnings stability, of which more than 90% is safeguarded by the incentive-based regulation (IBR) framework, and shall remain so during the coming Regulatory Period 2 (RP2), anchoring a decent dividend yield of 4% to 5%.

“Over the medium term, its earnings growth will be driven by a new Rm541mil gas pipeline project to cater to an independent power producer in Pulau Indah with a commercial operation date (COD) in the first quarter of 2023 (1Q23) and a Rm460mil gas compressor station project in Kluang (COD in 1Q24),” the research house said.

Kenanga Research is still maintaining its “market perform” call on the stock, but noted that risks to its recommendation include regulatory risk and a global recession, hurting demand for power, steam and industrial gases.

For the 2Q ended June 30, 2022, the company’s net profit stood at Rm396.5mil, a 9.69% decline from the previous corresponding quarter, on revenue of Rm1.5bil, 8.7% higher year-on-year. Earnings per share was 20.04 sen, compared with 22.19 sen.

For the said quarter, the group declared a second interim dividend of 16 sen going ex on Sept 12, 2022, and payable on Sept 23, 2022.

Maybank Investment Bank (IB) Research is lowering its FY22, FY23 and FY24 net profit forecasts by 8%, 5%, 4% respectively, to reflect lower utilities margins.

Negotiations for incentive-based regulatory period 2 (RP2) (2023 to 2025) are progressing as scheduled, it said, with investors likely on the lookout for the quantum of the new transport tariff.

There are several risk factors for our earnings estimates, target price and rating for the company, it said.

Regulatory developments, such as the determination of regulated returns, have a direct impact on earnings, it said, noting that unscheduled outages could also result in earnings losses for Petgas.

Meanwhile, CGS-CIMB Research reiterated its “hold” call on the stock with a target price of RM16.70.

“We retain our ‘hold’ call given the expected weaker FY22 to forecast FY24 earnings versus FY21, due to Cukai Makmur and anticipated earnings step-down in FY23 arising from IBR RP2 (2023 to 2025). Dividend yields of more than 4% for FY22 to FY24 will likely provide support to its share price.”