Petronas Gas - Lower gas exports, Lekas RGT delayed to 2QFY13 BUY

- We maintain our BUY recommendation on Petronas Gas (PGas), with a largely unchanged sum-of-parts- (SOP) based fair value of RM21.60/share which implies an FY13F PE of 24x.

- We have slightly reduced PGas’ FY12F-FY13F earnings by 2%-3% due to the delayed commencement of the Lekas regassification plant, which has been further postponed to 2QFY13. 

- The group’s 9MFY12 core net profit of RM1,010mil (excluding net gains of RM100mil arising from Gas Malaysia’s IPO, which led to a  5% reduction in the group’s equity stake in the latter to 15%) was below expectations – accounting for 66% of our FY12 core net profit forecast of RM1,528mil and 62% of street estimates’ RM1,628mil. 

- But we maintain FY14F net profit, which has already incorporated contributions from the upcoming Lekas liquefied natural gas (LNG) regassification terminal in Malacca that is now expected to commence in 2QFY13F. 

- QoQ, the group’s 3QFY12 turnover slid 3% to RM866mil due to lower exports of propane and butane. Along with higher operating overheads, this caused 3QFY12 core net profit to decline by 12% QoQ to RM318mil. 

- The group’s 9MFY12 core net profit was flat YoY as  the higher transportation capacity charges and increased sales of industrial gasses, electricity and steam in the  utilities division was mostly offset by lower profit sharing arising from weaker export volumes for propane & butane.

- While PGas has now announced that the 530mmscfd Lekas RGT could commence operations in 2Q2013, we expect realistically actual commencement only when the pricing of natural gas has been settled. As electricity prices are fixed until 1H2013, we expect contributions to only start in 2H2013, which could accelerate FY13F earnings by 15%.

- Besides the Lekas RGT, PGas is also involved in the RM1bil Lahad Datu regassification terminal to supply gas to Tenaga’s power plant by 2015. Additionally, the RM60bil Refinery and Petrochemicals Integrated Development (RAPID) in Pengerang, Johor, includes a power generation capacity of 1,200MW and an RGT project which could be much larger than the over RM2bil Lekas RGT. We estimate that every additional RM1bil in investments could raise PGas’ SOP by 16 sen/share, assuming a project IRR of 9%, equity discount rate of 10% and debt:equity ratio of 80:20.

- The stock is currently trading at an attractive FY13F PE of 22x – below its 2009 peak of 25x. We expect further newsflow on fresh LNG projects to sustain the stock’s re-rating momentum.

Source: AmeSecurities