AmInvestment Research maintains Sell on PetGas

  • Analyst Reports
  • Tuesday, 14 Nov 2017

KUALA LUMPUR: AmInvestment Research has maintained its Sell call on PETRONAS GAS BHD with unchanged forecasts and fair value of RM6.60 a share.

According to the research firm, since it downgraded the counter from Hold in November last year, the share price has fallen 18% on concerns of value erosion from the Energy Commission's (EC) plan to implement incentive-based regulation invitiatives on the group's gas transport tariff under the Gas Supply Act 2016.

"Based on management's guidance that its gas transportation segment’s depreciated replacement cost is 3x its current historical book value, our FY18F-FY19F return on regulated asset base (RAB) translates to 9% for the gas transportation segment
vs Tenaga Nasional’s 5.4% ROA in FY17," it said.

AmInvestment Research said Petronas Gas has not provided much clarity on the third-party access (TPA) negotiation with the EC. It added the group's licence submissions for the Peninsular Gas utilisation system together with the Melaka and Pengerang Regasification terminals were made on Oct 24.

Petronas Gas is not able to provide any clarity on the timeline of the EC's decision or the tariff structure despite the effective date of the TPA on Jan 16, 2018.

The group's 65%-owned Pengerang LNG regasification terminal reached commercial operation on Nov 1, 2017, and will marginally contribute to revenue and earnings in the final two months of 2017.

"At a cost of RM2.7bil, we have already incorporated this RGT to account for 6% of FY18F-FY19F pre-tax profit," said AmInvestment Research.

According to the research firm, management did not comment on the possibility that Petronas Gas may be securing an equity stake in Petronas’ 1,220MW Pengerang co-generation gas-fired power plant, which costs RM5bil. The first gas supply was sent via the group’s 70km gas pipeline on June 14 this year.

"In our view, this additional project returns, if secured, is unable to fully offset the potentially adverse IBR-led impact to the group’s transportation tariff," it said.
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