Petronas Gas Buy Maintained. Resilient Performance Amid Higher Costs

AmBank has maintained its BUY rating for Petronas Gas Berhad, citing the company’s resilient performance despite higher operating costs.

The bank’s fair value estimate remains at RM19.97 per share, reflecting a price-to-earnings (PE) ratio of 21.5x for FY24F.

AmBank highlights Petronas Gas’ stable earnings, supported by regulated business segments, and the attractive dividend yield of 5%-6%. The company reported a full-year core net profit of RM941 million for FY24, aligning with expectations.

AmBank believes the stock remains appealing, particularly if Petronas Gas optimizes its capital structure.

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Maintain BUY
Fair Value (FV): RM19.97/share
Implied FY24F PE: 21.5x

Performance Overview:

• FY24 Core Net Profit: PGB reported a full-year core net profit (CNP) of RM941 million, which aligns with expectations, accounting for 52% of the earnings estimates.
• 2QFY24 Performance: Revenue increased by 1.8% quarter-over-quarter (QoQ) due to higher reservation charges in the gas processing segment and upward tariff adjustments in gas transportation. However, CNP only rose by 0.5% due to higher operating expenses, mainly related to depreciation, maintenance, and inflation.

Dividend Declaration

• PGB declared a second interim dividend per share (DPS) of 16 sen, representing a payout ratio of 71%, which is significantly above its policy of 50%.

Valuation and Appeal:

• Current Trading: The stock trades at a fair FY24F PE of 20x, close to pre-FY20 peak levels.
• Dividend Yield: PGB offers attractive dividend yields of 5%-6%, which could increase further if the company optimizes its capital structure from the current net cash position to levels seen in other utilities companies.

Outlook

• PGB’s resilient performance is driven by regulated business segments despite rising costs, making it an appealing investment with strong dividend potential and a fair valuation.

PGB – Investment Summary

Recommendation from MIDF: Maintain BUY
Revised Target Price: RM19.23 (previously RM19.44)
Current Price (20th August 2024): RM18.18
Expected Total Return: +11.1% (including a +5.8% share price return and +4.0% dividend yield)

Key Highlights:

Earnings Performance

1HFY24 Earnings: Increased by +2% year-over-year (YoY), primarily due to lower operating expenses (opex) and reduced exposure to forex fluctuations.

1HFY24 Revenue: Declined by -1.4% YoY to RM3.27 billion due to lower product prices despite higher sales volume.