Affin Hwang cuts PetGas earnings forecast

PETALING JAYA: Petronas Gas Bhd’s (PetGas) net profits in the next two years are expected to be hit by lower gas transportation tariffs, according to Affin Hwang Capital Research.

Calling the company’s outlook “murky”, the research house said it expected PetGas to record a slightly lower net profit of RM1.85bil in the financial year 2020 (FY20), down from a projected net profit of RM1.88bil in FY19.

“We cut our FY19-FY20 forecast earnings by 4%-8% to factor in the pilot gas transportation tariff in 2019 and a further earnings step-down, based on the revised incentive-based regulation (IBR) in the Regulatory Period 1 (RP1) of 2020 to 2022.

“We maintain our ‘hold’ call but lower our target price to RM17.30,” it said in a note. The previous target price was RM20.10.

PetGas is now operating under the new gas transportation tariff (known as the pilot year). For context, the tariff has been reduced by about 14% to RM1.072 per gigaJoule by the Energy Commission for the one-year period.

The commission has also lowered the tariffs for the Sungai Udang regasification terminal to RM3.518 per one million British thermal units (mmbtu) and Pengerang regasification terminal to US$0.637 per mmBtu.

Affin Hwang Capital said it expected the lower tariffs to have a 7% impact on PetGas’ regasification business in 2019, which makes up 25% of its overall business.

PetGas is in the midst of submitting a proposed tariff for RP1 to the Energy Commission, following the implementation of the third-party access (TPA) system by the commission.

Under the TPA system, all parties would be able to utilise gas facilities available in Malaysia such as regasification terminals, transmission pipelines and distribution pipelines, based on the same terms and conditions.

The objective of the TPA system is to create a situation where the gas price to end-consumers will be based on a willing-buyer-willing-seller basis.

Affin Hwang Capital Research said PetGas also faced earnings downside risk due to the gradual change in the regulated asset base computation. However, the impact would be marginal on its earnings forecasts, it added.

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