PETALING JAYA: Analysts are cautious on the earnings growth potential of Petronas Gas Bhd (PetGas) going forward as the company negotiates a fourth gas processing transmission agreement (GPTA) with parent company Petroliam Nasional Bhd (Petronas), and as the group faces a weaker outlook in the natural gas sector amid higher operating costs.
“We concur with consensus view that the new rates are likely to be less favourable, given the current demand decline for natural gas and continuous pressure on margins due to the higher gas feed costs,” MIDF Research told clients in a research note, referring to the GPTA, which is due for renewal in April 2010 and currently undergoing a preliminary review.
But the research house acknowledged that “despite the weaker outlook on the natural gas sector, we believe demand will improve with support from independent power producers (IPPs) coupled with the rise in small and medium-scale enterprise demand on the back of an economic recovery.”
MIDF Research has maintained its “neutral” call on PetGas at the same target price of RM10.25.
For the first quarter ended June 30, PetGas posted a net profit of RM268.9mil on the back of RM785.6mil in revenue, which is a decrease of 9.03% and 1.4% respectively, a year earlier.
Its earnings per share declined by 9.03% to 13.59 sen.
Nevertheless, the first-quarter results met expectations of the market and analysts.
HwangDBS Vickers Research said the first quarter was seasonally stronger for PetGas but “earnings should taper off in the next few quarters as it recognises higher operating costs, including maintenance and management-related costs.”
“We see no potential catalyst apart from the Kimanis power plant, which is not expected to be operational until late 2013,” the research house said in a report. “And with Terengganu’s offshore gas supplies past its peak production cycle, a favourable fourth GPTA remains in doubt.”
PetGas’ Kimanis power plant in Sabah is a 60:40 joint venture with Yayasan Sabah.
HwangDBS has reiterated its “fully valued” call on PetGas with a target price of RM8.80.
Meanwhile, TA Securities said merger and acquisition prospects could add some flavour to the stock, noting that PetGas has a huge cash balance of RM2.1bil.
“It still has the option to go for external funding to fund acquisitions as it is in a net-cash position and has a strong operating cashflow of RM400mil,” TA Securities told clients in a note.
The brokerage has maintained its “hold” recommendation on the stock with a target price of RM10.30.
OSK Research is maintaining its “neutral” call on PetGas until it has more clarity on what the company plans to do with its RM2bil cash pile. It has, however, adjusted downward its target price for the stock to RM10.62 from RM10.80 due to a drop in longer-term forecasts.
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