Petronas Gas Berhad - Lower Tariffs for Regulated Business
Fri, 21-Mar-2025 07:25 am
by Ong Tze Hern • Apex Research

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PETGAS (6033)

Target Price (RM)

17.750

Recommendation

Hold

Summary

  • PETGAS has announced that tariffs for its regulated business will be adjusted lower, effective from 1 Jan 2025 to 31 Dec 2025.

  • While these adjustments reduce regulated revenue and profit in FY25, they do not affect PETGAS’s overall regulated return framework for the future.

  • After incorporating the new tariffs, we have lowered our FY25 earnings forecasts by 0.7% while maintaining our FY26 and FY27 estimates unchanged.

  • Maintain HOLD recommendation with a lower TP of RM17.75 (previously RM17.80), based on SOP valuation, implying a valuation of 17.8x FY25 EPS.

 

Transportation and Regasification Tariffs Adjusted Lower. PETGAS has announced that tariffs for its regulated business will be adjusted lower, effective from 1 Jan 2025 to 31 Dec 2025 under RP2 (2023-2025). As shown in Figure 1, compared with 2024, the Peninsular Gas Utilisation (PGU) pipeline, Malaysia’s primary gas transportation network, will see its transportation tariff reduced by 4.3%, while the high-pressure gas supply tariff to Singapore will be lowered by 5.4%. For regasification tariffs, the reductions are more modest, at 0.3% for Regas Terminal Sungai Udang (RGTSU) and 0.03% for Regas Terminal Pengerang (RGTP).

 

Our Take. We believe the downward tariff adjustments are primarily due to revenue-cap adjustments, likely driven by higher-than-expected reserved firm capacity in FY23, along with savings from lower internal gas consumption (IGC) volume. While these adjustments reduce regulated revenue and profit in FY25, they do not affect PETGAS’s overall regulated return framework for the future.

 

Outlook. Looking ahead, medium-term earnings growth will be supported by (i) RP3 for Gas Transportation and Regasification segments from FY26 onwards, driven by higher regulated asset base (RAB) and rising gas demand, and (ii) higher contributions from joint ventures, particularly the 52MW Sipitang Power Plant and 100MW Kimanis Power Plant II, both expected to contribute from FY26 onwards. During the latest analyst briefing, management indicated that RGTSU and RGTP could reach full utilisation within 1-2 years, necessitating a new RGT to fulfil the increasing gas demand as a transitional fuel. The award decision for new RGT must be finalised soon as construction has a long lead time of 3-4 years. Given PETGAS’s strong track record as Malaysia’s leading RGT operator, the Group is the frontrunner to secure a new RGT project, which would expand its regulated asset base and enhance its regulated returns in the regasification segment.

 

Earnings Revision. After incorporating the new tariffs, we have lowered our FY25 earnings forecasts by 0.7% while maintaining our FY26 and FY27 estimates unchanged.

 

Valuation and Recommendation. Following the earnings adjustments, we maintain our HOLD recommendation with a lower TP of RM17.75 (previously RM17.80), based on sum-of-parts valuation and a three-star ESG rating. This implies a valuation of 17.8x FY25 EPS, approximately 1 standard deviation above its 5-year historical mean forward PE. As a key player in Malaysia’s gas infrastructure, PETGAS stands to benefit from the country’s increasing natural gas demand. The Group remains a defensive stock of choice in a volatile market, with over 85% of its operating profit derived from stable, defensive segments, while offering an attractive dividend yield of c.4%. The key catalyst for PETGAS would be securing a new RGT contract, which would enhance its long-term growth outlook.

 

Risks. Escalation in gas prices and unplanned shutdowns.

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