PETALING JAYA: Petronas Gas Bhd
’s (PetGas) earnings trajectory over the next regulatory cycle is expected to hinge on how revised tariffs translate into returns and asset growth, with investors looking beyond headline increases to the mechanics underpinning regulated profits.
Visibility into capital expenditure (capex), returns and cost recovery will determine whether the gas infrastructure operator can sustain its valuation premium as a defensive utility proxy within the energy sector.
According to TA Research, the tariff revision announcement under Regulatory Period 3 (RP3) left several material questions unanswered, noting that “the announcement fell short of detailing the key tariff components, in particular, the allowed rate of return and projected regulated asset base (RAB), which generally determines PetGas’ regulated earnings for the period.”
While acknowledging that the broadly higher tariffs look positive on the surface, the research house added that it was waiting further details to determine the key drivers for the higher tariffs.
Nevertheless, TA Research expressed confidence that asset growth could still underpin earnings.
“We reckon RAB is likely to continue expanding under RP3 from sustained regulated capex (and potentially higher capex for peninsular gas utilisation (PGU) to maintain integrity of assets following the pipeline fire incident in April 2025), which should underpin PetGas’ regulated earnings growth under RP3,” it explained.
TA Research highlighted the importance of regulated operations, pointing out that in 2023 and 2024, the regulated businesses contributed to 52% of group gross profit.
It maintained its “buy” call on PetGas, with an unchanged sum-of-parts-derived target price (TP) of RM20.58 per share, implying a forward price-to-earnings ratio of 19 times for financial year 2026, and cited dividend yields of 4.4% to 5.2%.
CIMB Research focused on the potential earnings uplift from higher transportation charges, stating: “Assuming earnings before interest, tax, depreciation and amortisation (Ebitda) margin and our current capex assumptions remain intact, we estimate that the big increase in the PGU transportation base tariff will boost our existing 2026–2028 gas transportation Ebit projections by approximately 12%.”
As gas transportation accounts for about a quarter of total Ebit, it said the positive impact on PetGas’ 2026 to 2028 core earnings per share (EPS) could be 3% to 4%, which would lift its discounted cash flow-based valuation.
However, caution remains as PetGas did not disclose the regulated capex for gas transportation and regasification services under RP3, nor if there have been any changes to the regulated return on the RAB.
CIMB Research retained its “hold” rating with a TP of RM19.40 a share.
BIMB Research viewed the approval for an increase in tariff as largely anticipated.
It added that the RP3 approval removes a key regulatory overhang and strengthens earnings visibility over 2026 to 2028, supporting its “buy” call and an unchanged TP of RM21.81.
For context, PetGas announced approval of revised tariffs for gas transportation and regasification services under RP3, running from Jan 1, 2026, to Dec 31, 2028, with base tariffs broadly higher than in RP2.
This is led by a 12.5% increase for the PGU pipeline and a 2.5% rise for the Regasification Terminal Sungai Udang, Melaka, which will be partly offset by marginal declines in other tariffs.
