KUALA LUMPUR: Affin Hwang Capital research has cut its earnings on Petronas Gas Bhd
to reflect the lower tariffs as the gas transport business.
It reduced its 2019-20E earnings by 4-8% to factor in the pilot gas transport tariff in 2019 and a further earnings step down based on the revised IBR in RP1.
"We maintain our HOLD call but lower our target price to RM17.30 (adjusting for a higher WACC of 7.8% from 7.1% and a lower terminal growth from 2% to 1%)," it said.
Affin Hwang believes there could still be earnings downside risk as a result of the gradual change in the regulated asset base computations, albeit marginal in its revised forecasts.
To recap Petronas Gas is currently oeprating under the new gas transport tariff in 2019 while in the midst of submitting proposed tariff for RP1 to the Energy Commission following the implementation of third-party access.
The group will also be gradually migrating from a depreciated replacement cost approach to net book value as the RAB.
"This has a greater impact on its gas transportation business (which made up 40% of total 2018 operating profit) due to the lower net book value of its Peninsular Gas Utilisation pipeline network as compared to its regasification assets, which are relatively newer," said Affin Hwang.
Meanwhile, the EC has lowered the incentive-based regulation tariff following the TPA implementation for Peninsular gas utilisation.
"Based on our estimates, this could have a 7% impact on the regasification business in 2019, which makes up 25% of the business," said the research house.
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