Kenanga Research said the latest venture would enhance PetGas' absolute earnings.
PETALING JAYA: Petronas Gas Bhd
(PetGas) has received a shot in the arm as the RM650mil investment for the compressor station in Jeram, Selangor is set to fuel its earnings growth over the next few years amid downside risks.
Analysts opined that the decision to invest in the latest venture is a positive one, as it would facilitate the growing demand for clean fuel gas and sustain its future operations pending potential headwinds in the oil market.
The downstream arm of Petroliam Nasional Bhd said the project is slated to be completed in 2026 and would consist of two gas compressors with the aim of improving the Peninsular Gas Utilities infrastructure in the northern region of Peninsular Malaysia.
Kenanga Research said it is positive on the latest development, as it expands PetGas’s regulated asset base for regulatory period three (RP3) over the three-year period from 2026 to 2028 and enhances its absolute earnings.
Prior to this, the company had already committed to capital expenditure (capex) in financial year 2024 in excess of RM1.1bil, comprising among others, the Sipitang power plant with the targeted commercial operation date (COD) in 2026, liquefied natural gas storage expansion in Pengerang with COD targeted in mid-2025, and cold energy air separation unit with COD targeted in 2026.
“We continue to like PetGas for its earnings stability, of which more than 90% is safeguarded by the incentive-based regulation framework and its capex plans under the RP2 that will improve its absolute earnings, anchoring a decent dividend yield of 4%.
“However, its valuations are already rich at the current levels and we are maintaining the ‘market perform’ call on the stock.
“Risks to our recommendation include regulatory risk, and a global recession hurting demand for power, steam and industrial gases,” the research house said.
Meanwhile, MIDF Research said all in all, it commends this project, in consideration that this is a step to sustain PetGas’s future operations amid the expected increased tariff, while also catering to the growing demand for clean fuel gas from the industrial and plantation sectors.
“Pending the potential headwinds of the volatile oil market and its effects of average selling price for fuel gas in the long run, we remain positive on PetGas’ prospects in its expansion projects.
“We make no changes to our earnings estimates and maintain our ‘buy’ call on the company with a target price of RM19.37,” it said.
