Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: HWANGDBS
Petronas Gas Bhd
(April 20, RM11.22)
Upgrade to buy from hold with revised target price RM13.50 (from RM11.40): PetGas will turn into a multi-utility player with the completion of its Melaka regasification plant in July 2012 and Kimanis power plant in 2013.
We expect the regasification services agreement (RSA) between PetGas and Petroliam Nasional Bhd (Petronas) to be finalised soon.
There will be no fuel cost risk under the RSA as gas supply will be procured by Petronas. Assuming RM1.5 billion investment and 9% internal rate of return (IRR), the plant will add 18% to net profit from FY13 onwards.
We estimate IRR at 9% for the Kimanis power plant, and PetGas' 60% stake will entitle it to about RM130 million annual contribution from FY14 onwards.
PetGas registered strong net cash of RM2.1 billion (RM1.06 per share) for 9M11. We expect capital expenditure to rise to RM1.5 billion per year over FY12/13 with the new investments, but free cash flow will remain strong at more than RM600 million due to improved profitability under the fourth gas processing and transmission agreement (GPTA).
PetGas does not have a dividend policy. We assume a 66% to 68% net payout for FY11/12F with sustainable 50 sen dividend per share.
We expect higher revenue for PetGas' PGU gas volume upon completion of the Melaka regasification plant, as the fourth GPTA allows the use of third-party gas. We raise FY13/14F net profit by 3% to 18% after imputing additional 200mmscfd of gas volume that will be transported by PGU, and maiden contribution from the regasification plant.
Consequently, our discounted cash flow-derived target price is raised to RM13.50. ' HwangDBS Vickers Research, April 20
This article appeared in The Edge Financial Daily, April 21, 2011.
Company Name: PETRONAS GAS BHD
Research House: HWANGDBS
Petronas Gas Bhd
(April 20, RM11.22)
Upgrade to buy from hold with revised target price RM13.50 (from RM11.40): PetGas will turn into a multi-utility player with the completion of its Melaka regasification plant in July 2012 and Kimanis power plant in 2013.
We expect the regasification services agreement (RSA) between PetGas and Petroliam Nasional Bhd (Petronas) to be finalised soon.
There will be no fuel cost risk under the RSA as gas supply will be procured by Petronas. Assuming RM1.5 billion investment and 9% internal rate of return (IRR), the plant will add 18% to net profit from FY13 onwards.
We estimate IRR at 9% for the Kimanis power plant, and PetGas' 60% stake will entitle it to about RM130 million annual contribution from FY14 onwards.
PetGas registered strong net cash of RM2.1 billion (RM1.06 per share) for 9M11. We expect capital expenditure to rise to RM1.5 billion per year over FY12/13 with the new investments, but free cash flow will remain strong at more than RM600 million due to improved profitability under the fourth gas processing and transmission agreement (GPTA).
PetGas does not have a dividend policy. We assume a 66% to 68% net payout for FY11/12F with sustainable 50 sen dividend per share.
We expect higher revenue for PetGas' PGU gas volume upon completion of the Melaka regasification plant, as the fourth GPTA allows the use of third-party gas. We raise FY13/14F net profit by 3% to 18% after imputing additional 200mmscfd of gas volume that will be transported by PGU, and maiden contribution from the regasification plant.
Consequently, our discounted cash flow-derived target price is raised to RM13.50. ' HwangDBS Vickers Research, April 20
This article appeared in The Edge Financial Daily, April 21, 2011.
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