Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: MAYBANK
Petronas Gas Bhd (PetGas)
(May 12, RM9.93)
Maintain hold at RM9.88 with unchanged target price of RM10.40: PetGas' results met expectations, despite a weaker 4Q performance. With the fourth gas processing and transmission agreement (GPTA 4) taking effect in April 2010, PetGas will be operating on an improved business model (better terms, lower risks) from FY11 onwards.
Nevertheless, PetGas remains a hold as the positives have been priced in. The upside to our RM10.40 discounted cash flow-derived (DCF) target price is only 5%. The stock offers only decent income return potential with a forecast net dividend yield of 5%, without much of a capital upside potential.
4QFY10 net profit fell 24% quarter-on-quarter (q-o-q), on a 4.7 percentage point erosion in earnings before interest and tax (Ebit) margin, bringing FY10 net earnings to RM941 million (+1% year-on-year), in line with our and consensus expectations. The sequential weaker performance was largely due to weaker gross profits at utilities operations (-66%; mainly on lower turnover which contracted 12% q-o-q as margins continued to hold), lower associates contributions (-35%; mainly from 20%-owned Gas Malaysia) and higher effective tax rates (+4.6ppt to 27.2%).
PetGas' financials remain healthy, with net cash growing by 22% q-o-q to RM1.8 billion (or 93 sen per share) as at March 2010. Meanwhile, PetGas maintained a final dividend per share (DPS) of 35 sen (30 sen single-tier and five sen tax-exempt), which brings its FY10 DPS to 50 sen (105% net profit payout).
PetGas will operate under the terms of the GPTA 4 from April 2011 to March 2014. We opine that GPTA 4 is structurally better than GPTA 3. It is earnings enhancing and comes with lower operating risks. It also shields PetGas from fluctuations in gas prices and allows importation of a third party gas supply (LNG) into its PGU lines, thus removing shortage of gas supply risks from Peninsular Malaysia gas fields from 2019-21. All in, we expect net profit to grow by 40% in FY11. - Maybank IB, May 12
This article appeared in The Edge Financial Daily, May 13, 2010.
Company Name: PETRONAS GAS BHD
Research House: MAYBANK
Petronas Gas Bhd (PetGas)
(May 12, RM9.93)
Maintain hold at RM9.88 with unchanged target price of RM10.40: PetGas' results met expectations, despite a weaker 4Q performance. With the fourth gas processing and transmission agreement (GPTA 4) taking effect in April 2010, PetGas will be operating on an improved business model (better terms, lower risks) from FY11 onwards.
Nevertheless, PetGas remains a hold as the positives have been priced in. The upside to our RM10.40 discounted cash flow-derived (DCF) target price is only 5%. The stock offers only decent income return potential with a forecast net dividend yield of 5%, without much of a capital upside potential.
4QFY10 net profit fell 24% quarter-on-quarter (q-o-q), on a 4.7 percentage point erosion in earnings before interest and tax (Ebit) margin, bringing FY10 net earnings to RM941 million (+1% year-on-year), in line with our and consensus expectations. The sequential weaker performance was largely due to weaker gross profits at utilities operations (-66%; mainly on lower turnover which contracted 12% q-o-q as margins continued to hold), lower associates contributions (-35%; mainly from 20%-owned Gas Malaysia) and higher effective tax rates (+4.6ppt to 27.2%).
PetGas' financials remain healthy, with net cash growing by 22% q-o-q to RM1.8 billion (or 93 sen per share) as at March 2010. Meanwhile, PetGas maintained a final dividend per share (DPS) of 35 sen (30 sen single-tier and five sen tax-exempt), which brings its FY10 DPS to 50 sen (105% net profit payout).
PetGas will operate under the terms of the GPTA 4 from April 2011 to March 2014. We opine that GPTA 4 is structurally better than GPTA 3. It is earnings enhancing and comes with lower operating risks. It also shields PetGas from fluctuations in gas prices and allows importation of a third party gas supply (LNG) into its PGU lines, thus removing shortage of gas supply risks from Peninsular Malaysia gas fields from 2019-21. All in, we expect net profit to grow by 40% in FY11. - Maybank IB, May 12
This article appeared in The Edge Financial Daily, May 13, 2010.
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