PetGas poised to gain from potentially higher natural gas usage

“Management does not rule out the possibility of supplying natural gas to gas-fired power plants and new industrial parks in the medium term, ” CGS-CIMB Research said.

PETALING JAYA: Petronas Gas Bhd (PetGas) is emerging as a potential environmental, social and governance (ESG) rotation play, according to CGS-CIMB Research.

This comes as PetGas is poised to benefit from potentially higher natural gas usage as more coal-fired power plants retire from the grid system and the ESG trend gains traction.

“Management does not rule out the possibility of supplying natural gas to gas-fired power plants and new industrial parks in the medium term, ” CGS-CIMB Research said.

The brokerage, which recently hosted PetGas at its annual Malaysia Virtual Corporate Day, said the company could stand out as a good candidate for ESG rotation play, given that it is ranked among the top 25% by ESG ratings among public listed companies in FBM Emas that have been assessed by FTSE Russell as of Dec 2020.

In addition, PetGas was a gas pipeline asset owner with limited gas plant generation capacity (256MW as of 2020) and no coal plant exposure; and its ESG rating had been upgraded by MSCI to BB (average) since May 2020 from B (laggard) previously.

CGS-CIMB Research maintained its add recommendation on PetGas given the company’s relatively stable earnings profile, healthy balance sheet and decent dividend yield amid a low interest rate environment.

Its target price for the counter was also unchanged at RM18.60 based on 19 times forward earnings.

“We gather that the group will continue to improve operational efficiencies across its four core businesses, accelerate efforts to expand its non-regulated revenue, and expand its customer base by targeting both existing and emerging industrial hubs, ” CGS-CIMB Research said. It noted PetGas had been broadening its revenue streams by venturing into new businesses.

“It rolled out a couple of ancillary services, leveraging on its regasification terminals, such as gassing up cooling down (GUCD), liquefied natural gas (LNG) reloading, LNG truck loading, and LNG bunkering. GUCD and LNG reloading services commenced operations in 2019, while LNG truck loading and LNG bunkering services started in the second half of 2020, ” said CGS-CIMB Research.

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