Petronas Gas - Priming up for Lekas RGT BUY

- We maintain our BUY recommendation on Petronas Gas (PGas), with an unchanged sum-of-parts- (SOP) based fair value of RM21.60/share which implies an FY13F PE of 25x.

- We maintain PGas’ FY13F-FY14F earnings which incorporate contributions from the Lekas regassification terminal (RGT) and 300MW Kimanis power plant. 

- We introduce FY15F net profit, with a modest 4% growth, which has not yet included any contribution from the proposed 100mmscfd Lahad Datu RGT, which is expected to largely support Tenaga’s 300MW gas-fired power plant. 

- The group’s FY12 net profit of RM1,401mil (including 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 our expectations, at 6% below our FY12 core net profit forecast of RM1,495mil but within the street estimate of RM1,417mil. 

- QoQ, the group’s 4QFY12 turnover rose 5% to RM909mil due to higher exports of propane and butane, as well asincreased utilities sale. But higher unrealised forex losses caused 4QFY12 net profit to unexpectedly decline by 5% QoQ to RM400mil. 

- The group’s FY12 net profit was up 4% YoY but this stemmed from the net gain in Gas Malaysia’s IPO which offset lower export volume of 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 have assumed that the Lekas RGT contribution to only start in 3Q2013.

- Besides the Lekas RGT, PGas is also involved in the RM1bil Lahad Datu RGT 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 overRM2bil 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 21x – below its 2009 peak of 25x. We expect further newsflow on upcoming LNG projects to sustain the stock’s re-rating momentum.

Source: AmeSecurities