MAYBANK IB Research has maintained a neutral recommendation on the utilities sector as third-party access (TPA) for gas begins this year.
The TPA system will allow any party to have access to and utilise the gas facilities available in the country on the same terms and conditions as other parties for similar utilisation.
The research house said pure infrastructure owners such as Petronas Gas Bhd would earn a return on its asset and are not subject to volume risk.
The compensation mechanism for retailers is less clear – Gas Malaysia Bhd for now appears to run on a regulated retail margin model.
Both gas and electricity are under the purview of the Energy Commission, and thus share a common tariff framework.
However, regulatory disclosure for gas has been poor in recent years in comparison to electricity.
“Presently, many regulatory details such as the weighted average cost of capital (WACC) and regulatory asset base (RAB) for the current regulatory period (2020-2022) remain undisclosed, thus there is some degree of uncertainty to our earnings forecasts for both gas utilities,” notes Maybank IB analyst Tan Chi Wei.
In the utilities space, the research house prefers Tenaga Nasional Bhd. It reiterates a buy on Tenaga with an unchanged discounted cash flow (DCF)-based TP of RM15.50.
TPA would allow gas retailers to source directly from the liquefied natural gas (LNG) spot market, occasionally at a lower cost to what Petronas is offering.
Tenaga had, in October 2019, trialed a cargo of LNG under TPA, with Shell Malaysia having delivered 3.5 trillion BTU of gas (equivalent to 14 days of consumption) to Tenaga’s Tuanku Jaafar Power Station in Port Dickson and its Connaught Bridge Power Station in Klang.
Tenaga noted that the delivered price was below the current regulated price (RM28.70/mmBTU). It also announced it intends to further venture into the area of gas procurement.
Prior to TPA, Petronas was the sole supplier of gas to the power sector. Under Tenaga’s current tariff framework, fuel costs are to be recovered from consumers in entirety (with a lag). There is presently no mechanism to incentivise Tenaga or IPPs to lower fuel costs.
This could change going forward, with fuel procurement being a potential area of reform by the regulator. “We believe some form of a sharing mechanism (of potential fuel savings) could be introduced in the near future,” says Tan.
Maybank IB maintains hold for Petronas Gas with an unchanged DCF-based TP of RM17.60 as well as for Gas Malaysia with an unchanged DCF-based TP of RM2.80.
