FIRE insurers “will not be too badly impacted” by claims of victims from yesterday’s (April 1) massive gas pipeline fire in Putra Heights given the brunt of claims should be on PETRONAS’ public liability insurer.
As a whole, MIDF Research nevertheless expects shares prices of Petronas Gas Bhd and possibly that of general/fire insurers to suffer a knee-jerk reaction as a result of the tragedy.
Under the research house’s coverage, LPI Capital Bhd has the largest financial and portfolio exposure to fire gross written premiums (GWPs).
“We don’t know who this is and the extent that the federal government will help with the fall-out,” opined MIDF Research in a strategy note which assesses impact of the Putra Heights gas explosion tragedy.
“We think impact to insurers’ share price will be negligible to slightly negative as Prime Minister Datuk Seri Anwar Ibrahim has alleviated concerns by stating that the federal government and PETRONAS are on the case.”
Added the research house: “Impact to earnings is also difficult to assess given that there are too little details on the scale of damages from a financial standpoint.
“The media states 227 houses were impacted, of which 79 were destroyed. 365 vehicles were affected (275 cars, 56 motorcycles and 33 other vehicles).”
Meanwhile, shares of Petronas Gas Bhd which ‘owns’ the Peninsular Gas Utilisation (PGU) pipeline by virtue of the latter being under its jurisdiction was suspended from trading between 9am and 10am today (April 2).
At 10.29am, Petronas Gas was down 22 sen or 1.18% to RM16.66 with 90,100 shares traded, thus valuing the company at RM32.97 bil.
‘Short-term share price drag’
Operation-wise, MIDF Research expects that disruptions on gas transportation sans the exploded 500-metre gas pipeline could be minimal for Petronas Gas.
“Financially, we estimate that there will be one-off impairment of roughly RM18 mil-RM25 mil minimum from Petronas Gas,” reckoned the research house.
“This includes revenue loss for the affected pipeline (10-15%), damage repair (25-30%), public compensation (25-35%) and reputational management.
“However, this minimum estimate is highly dependable on the type of damage caused (both medical and property damage, etc) and recovery time.”
Additionally, MIDF Research estimated a potentially two to three months of additional cost amounting up to RM5 mil minimum as compensation to industrial customers whose operations are directly impacted as the damaged pipeline may take months to be repaired.
“If the customers are not directly impacted, compensation may only be hours or days’ worth,” noted the research house. “At current juncture, we estimate the financial impact of the pipeline to be circa 1%-1.5% of Petronas Gas’ total earnings.”
While the incident is expected to drag Petronas Gas’ share prices down by -1.8% to -2.1% in the short term, it could take solace that the Fire and Rescue Department had stated that a possibility of a second explosion of scale is very low as no more gas leak is detected in the area after the closure of four pipe valves.
“For long term impact, it will depend on how effective Petronas Gas manages the aftermath and one-off should there be any that is significant to its future earnings,” viewed MIDF Research.
“At this juncture, we maintain our ‘buy’ call for Petronas Gas with a target price of RM18.67 as we believe it had responded well to the initial shutdown of the damaged pipe and will conduct due diligence to ensure PGU is operational within its planned recovery time, safely and cost-efficiently.” – April 2, 2025
Images credit: Anwar Ibrahim/Facebook
