Brokers cut earnings forecasts on PetGas

New term: PetGas’ liquefied natural gas regasification terminal in Sungai Udang, Melaka. PetGas has announced the second term of the gas processing agreement with its parent Petroliam Nasional Bhd.

PETALING JAYA: Several research houses have cut their earnings forecasts on Petronas Gas Bhd (PetGas) following the announcement of lower tariffs for the group’s gas-based infrastructure assets.

AllianceDBS has cut its forecast on PetGas’ 2019 and 2020 earnings by 5%, while MIDF Research said it has reduced its earnings estimate on the company by 4.5% for this year to account for the expected lower revenue coming from both the gas transportation and regasification segments.

On Monday, PetGas announced the tariffs revision for the utilisation of the Peninsular Gas Utilisation (PGU) system, the Regasification Terminal Sg Udang, Melaka (RGTSU) and the Regasification Terminal Pengerang, Johor (RGTP) for 2019.

For this year, the tariff for PGU is RM1.072 per gigajoule, down from RM1.248/Gj, while the tariff for RGTSU is RM3.518 per million British thermal unit (mmBtu) and for RGTP is US$0.637 per mmBtu.

The tariffs were derived under the the Incentive Base Regulation (IBR) framework in setting the base tariff in 2019.

MIDF said the PGU system contributed about 23% and 40% in revenue and profit, respectively, for PetGas.

“Assuming that the volume remains the same, we anticipate the revenue for the segment to reduce by 14.1%,” it said in a report.

The research house has downgraded its recommendation on PetGas to a “neutral” with a lower target price of RM19.75 due to the expected adverse impact on the company’s revenue and earnings arising from the reduced tariff.

Shares in PetGas closed 62 sen lower to RM18.58 yesterday.

“That said, we do expect the impact from the reduced tariff to be cushioned by the increase in gas volume transported and processed going forward as a result of the second gas processing agreement (GPA) term,” MIDF said.

Aside from the tariffs, PetGas had also announced the second term of the GPA with its parent Petroliam Nasional Bhd (Petronas), effective Jan 1, 2019 until Dec 31, 2023.

Under the second GPA, Petronas will pay PetGas a fixed reservation charge of RM2,524 per million standard cu ft (mmscf), representing an 8% increase over the next five years, as well as flow rate charge of 20 sen for each gigajoule of dry gas processed above the committed target of 1,750 mmscf per day.

“The higher fixed reservation charge will likely bump up PetGas’ net profit by about 2%.

“Nonetheless, this is still insufficient to offset the negative earnings impact arising from the lower PGU tariff,” CIMB Research said in a note to clients.

Meanwhile, Kenanga Research pointed out that the IBR framework, which offers transparency and an efficiency-driven reward system, is positive for both PetGas and end-users.

The research house said in its report that the long-awaited third-party access has finally been implemented and should clear earlier concerns of a severe rate cut.

“Like its sister companies, PetGas is one of the few stocks performing well in price performance last year as investors seek for earnings quality and sustainability in time of uncertainty like the present times.

“We believe that with this announcement, which is better than what the market had expected, the stock, which was suppressed in the past two years, will be able to re-rate to its pre-2017 period,” Kenanga said.

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