Petronas Gas Bhd (PetGas)
(April 7, RM10)
Upgrade to hold at RM9.89, with a higher target price of RM10.60: PetGas met with the investing community on Tuesday to explain the fourth Gas Processing and Transmission Agreement (GPTA) terms and underlying need for the distinct processing and transportation remuneration structure.
The lower reservation charge, which reflected both gas processing and transportation charges previously, is now only for gas processing.
We understand that the transportation tariff under the new capacity reservation sharge, which is a function of investment cost and distance gas transmitted, makes up the rest.
Historically, the proportion of gas transmitted to each zone is 25% (zone 1: east), 15% (zone 2: southern), 45% (zone 3: central), and 15% (zone 4: north). We estimate this to be RM1.2 billion. Cost savings derived from free internal gas consumption of between RM400 and RM500 million exceed our forecast.
The said underlying reason behind the new remuneration structure is to position PetGas to take on additional gas supply from new clients in the future. As production in Terengganu gas fields continues to drop, natural gas imports will inevitably grow to meet rising gas demand in the country.
We upgrade PetGas to hold following further details of the new GPTA, and prospects of new gas supplies. Our discounted cash flow-derived (DCF) RM10.60 per share target price is based on 7.5% weighted average cost of capital (WACC).
PetGas is now trading at 17.2 times CY11 price earnings (PE) and 2.3 times price-to-book value (PBV) against regional peers' 18.1 times and 3.1 times, respectively.
Gas imports would need a re-gasification plant. We believe the new gas supply might come from the Santos-Petronas LNG project in Australia, which is expected to come onstream in 2013. - HwangDBS Vickers Research, April 7
This article appeared in The Edge Financial Daily, April 8, 2010.
(April 7, RM10)
Upgrade to hold at RM9.89, with a higher target price of RM10.60: PetGas met with the investing community on Tuesday to explain the fourth Gas Processing and Transmission Agreement (GPTA) terms and underlying need for the distinct processing and transportation remuneration structure.
The lower reservation charge, which reflected both gas processing and transportation charges previously, is now only for gas processing.
We understand that the transportation tariff under the new capacity reservation sharge, which is a function of investment cost and distance gas transmitted, makes up the rest.
Historically, the proportion of gas transmitted to each zone is 25% (zone 1: east), 15% (zone 2: southern), 45% (zone 3: central), and 15% (zone 4: north). We estimate this to be RM1.2 billion. Cost savings derived from free internal gas consumption of between RM400 and RM500 million exceed our forecast.
The said underlying reason behind the new remuneration structure is to position PetGas to take on additional gas supply from new clients in the future. As production in Terengganu gas fields continues to drop, natural gas imports will inevitably grow to meet rising gas demand in the country.
We upgrade PetGas to hold following further details of the new GPTA, and prospects of new gas supplies. Our discounted cash flow-derived (DCF) RM10.60 per share target price is based on 7.5% weighted average cost of capital (WACC).
PetGas is now trading at 17.2 times CY11 price earnings (PE) and 2.3 times price-to-book value (PBV) against regional peers' 18.1 times and 3.1 times, respectively.
Gas imports would need a re-gasification plant. We believe the new gas supply might come from the Santos-Petronas LNG project in Australia, which is expected to come onstream in 2013. - HwangDBS Vickers Research, April 7
This article appeared in The Edge Financial Daily, April 8, 2010.
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