By Xavier Kong
ANALYSTS are positive on Petronas Gas Bhd (PetGas) following the unveiling of the Regulatory Period 1 (RP1, 2020 to 2022) tariffs, which have exceeded their expectations. They anticipate PetGas to chalk up higher earnings under the RP1.
TA Securities analyst Kylie Chan Sze Zan raised the research house’s earnings forecasts for the group’s 2020 and 2021 financial years by 3.3%, with the assumption that the RP1 tariffs have already incorporated the step down in Regulated Asset Base (RAB) values. The step down is due to a transitional valuation method used by the Energy Commission for changing the RAB valuation to a historical cost (HC) valuation.
“The actual RP1 tariffs for Peninsular Gas Utilisation (PGU) exceed our expectations. We had anticipated a higher downside risk in earnings due to the change in RAB valuation for PGU. This was evident from lower transportation Third Party Access (TPA) tariffs (16.4% reduction versus prior rates) during the 2019 pilot RP,” says Chan.
MIDF Research analyst Noor Athila Mohd Razali agrees that the new tariffs will lift earnings for the duration of its effect, stating it is “upbeat on the announcement as we opine that it will assist in lifting the earnings of PetGas during RP1”.
“We are revising our FY20 and FY21F earnings upwards by 8.4% and 9.3% respectively as we input the new tariffs in our earnings calculations, following the announcement of the RP1 tariffs,” says Athila, stating that the research house has turned more favourable towards PetGas due to the better tariffs and improved earnings visibility.
“We opine that, coupled with the second Gas Processing Agreement (GPA) which was entered into earlier this year with its parent company Petroliam Nasional Bhd (Petronas) as well as the ancillary services that PetGas will be providing in the near future, the new tariffs announced for RP1 are expected to assist in lifting the earnings of the group, which were initially plagued by uncertainty due to the newly implemented Incentive-Based Regulation (IBR) framework earlier this year.”
MIDF Research maintains a neutral call on PetGas, but adjusted its target price upwards to RM17.62 from a previous RM16.26, while TA Securities upgraded PetGas to a hold call, with a higher target price of RM18.50 from RM15.50.
At the noon close, PetGas’ shares were done at RM17.32, down 32 sen, with 381,000 shares changing hands. – Dec 23, 2019
