Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Petronas Gas Bhd
(Sept 13, RM13.50)
Maintain buy at RM13.50 with target price of RM14.40: Gas Malaysia (GM) has published its draft prospectus on the Securities Commission website for 15 working days. It is expected that GM will be listed on Bursa this December. The biggest shareholders, MMC Corp Bhd and Shapadu Group, own 55% of GM while Tokyo Gas-Mitsui Co Sdn Bhd owns 25% and Petronas Gas (PetGas) holds the remaining 20%. Note that 26% of GM's shares are offered for sale and there is no issuance of new shares. We estimate that post-listing,
PetGas' equity interest in GM will be reduced to about 14.8%.
MMC managing director Datuk Hasni Harun indicated that GM could have a market capitalisation of about RM5 billion, equivalent to about 16 times price-earnings ratio (PER) based on our estimate (at RM5 billion, the IPO price would be RM3.90). Therefore, PetGas' 20% stake in GM is valued at about RM1 billion, which is close to 10 times higher than its initial investment cost of only RM103 million. We reckon PetGas' equity value will then be lifted by about 10% to RM4.92 per share (2QCY11: RM4.47).
As a result of the 26% offer for sale, PetGas is expected to recognise about RM230 million disposal gains in its income statement, boosting CY11 bottom line by 14.6%. (Our estimate is subject to the IPO price.)
GM's contribution to PetGas' total net profit has averaged 5% or RM54 million for the past three years. Given that PetGas' ownership in GM will dilute to below 20% post-listing (14.8%), contribution from GM starting CY12 onwards will then be recognised as investment income instead of associate contribution. It was reported that GM is committed to pay a guaranteed dividend of 100% and 75% payout in the first two years after listing. We estimated that PetGas' CY12 net profit will be only marginally affected by about -1%.
We maintain our 'buy' recommendation for PetGas with unchanged target price of RM14.40, derived from 16.5 times PER plus net cash of RM1.27 per share. We continue to like PetGas as we expect the company to outperform the market during the uncertain period moving forward. This is supported by PetGas' strong fundamentals, the defensive nature of its business with good earnings quality, net cash position and consistent dividend payout. Furthermore, we believe PetGas is a proxy play to the rising gas demand and LNG imports. All considered, the listing of GM is postive to PetGas. ' MIDF Research
This article appeared in The Edge Financial Daily, September 14, 2011.
Company Name: PETRONAS GAS BHD
| Research House: MIDF | Price Call: BUY | Target Price: 14.40 |
Petronas Gas Bhd
(Sept 13, RM13.50)
Maintain buy at RM13.50 with target price of RM14.40: Gas Malaysia (GM) has published its draft prospectus on the Securities Commission website for 15 working days. It is expected that GM will be listed on Bursa this December. The biggest shareholders, MMC Corp Bhd and Shapadu Group, own 55% of GM while Tokyo Gas-Mitsui Co Sdn Bhd owns 25% and Petronas Gas (PetGas) holds the remaining 20%. Note that 26% of GM's shares are offered for sale and there is no issuance of new shares. We estimate that post-listing,
PetGas' equity interest in GM will be reduced to about 14.8%.
MMC managing director Datuk Hasni Harun indicated that GM could have a market capitalisation of about RM5 billion, equivalent to about 16 times price-earnings ratio (PER) based on our estimate (at RM5 billion, the IPO price would be RM3.90). Therefore, PetGas' 20% stake in GM is valued at about RM1 billion, which is close to 10 times higher than its initial investment cost of only RM103 million. We reckon PetGas' equity value will then be lifted by about 10% to RM4.92 per share (2QCY11: RM4.47).
As a result of the 26% offer for sale, PetGas is expected to recognise about RM230 million disposal gains in its income statement, boosting CY11 bottom line by 14.6%. (Our estimate is subject to the IPO price.)
GM's contribution to PetGas' total net profit has averaged 5% or RM54 million for the past three years. Given that PetGas' ownership in GM will dilute to below 20% post-listing (14.8%), contribution from GM starting CY12 onwards will then be recognised as investment income instead of associate contribution. It was reported that GM is committed to pay a guaranteed dividend of 100% and 75% payout in the first two years after listing. We estimated that PetGas' CY12 net profit will be only marginally affected by about -1%.
We maintain our 'buy' recommendation for PetGas with unchanged target price of RM14.40, derived from 16.5 times PER plus net cash of RM1.27 per share. We continue to like PetGas as we expect the company to outperform the market during the uncertain period moving forward. This is supported by PetGas' strong fundamentals, the defensive nature of its business with good earnings quality, net cash position and consistent dividend payout. Furthermore, we believe PetGas is a proxy play to the rising gas demand and LNG imports. All considered, the listing of GM is postive to PetGas. ' MIDF Research
This article appeared in The Edge Financial Daily, September 14, 2011.
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