PETGAS is partnering with subsidiaries of Sabah Electricity and Sabah Energy Corporation to develop a 120MW gas-fired power plant in Labuan. The project is within expectations, as management had earlier disclosed the receipt of the Letter of Notification in February 2025. Assuming a high single-digit to low double-digit equity IRR, we estimate the gas plant could contribute c.RM20m-RM35m in annual share of profit from the JV, equivalent to 1%-2% of FY24 core profit. We incorporate the FY24 annual report figures and included expected earnings contributions from the gas plant, assuming COD is achieved in 2HFY27. As a result, we revise our FY25/FY26/FY27 earnings forecasts by -0.6%/-0.7%/+0.1% respectively. Following the earnings revision and inclusion of Rancha Power in our valuation, we raise our TP to RM17.80 (previously RM17.75), based on SOP valuation and a three-star ESG rating. Maintain HOLD.
Collaboration to Develop 120MW Power Plant in Labuan. PETGAS, through its wholly-owned subsidiary PG Energia Sdn Bhd (ENERGIA), has entered into a shareholders’ agreement with Sustainable Power Sdn Bhd (SPSB), a wholly-owned subsidiary of Sabah Electricity Sdn Bhd (SESB), and SEC Power Sdn Bhd, a wholly-owned subsidiary of Sabah Energy Corporation Sdn Bhd, to jointly develop a 120MW gas-fired power plant in Labuan.
Project Details. PETGAS, SPSB and SEC Power will collaborate via a joint venture (JV) company, Rancha Power Sdn Bhd, to undertake the design, development, construction, installation, testing, commissioning, ownership, operation and maintenance of the power plant, with a target COD no later than 1 Jan 2028. PETGAS will hold an indirect 60% stake in Rancha Power via ENERGIA, while SPSB and SEC Power will each hold a 20% stake. The Project will be funded through internally generated funds and external financing.
Related Party Transaction. The transaction qualifies as a related party transaction as MOF Inc under the Ministry of Finance is the ultimate shareholder of both ENERGIA and SPSB. MOF Inc is the holding company of Petroliam Nasional Bhd (PETRONAS) and Khazanah Nasional Bhd. PETRONAS owns 51% equity interest in PETGAS, while Khazanah is the largest shareholder of Tenaga Nasional Berhad (TENAGA), which in turn holds an 83% stake in SESB. Meanwhile, Sabah Energy Corporations is wholly owned by the State Government of Sabah.
Our Take. This is PETGAS’s fourth gas-fired power plant project in Sabah.The project is within expectations, as management had earlier disclosed the receipt of the Letter of Notification in February 2025. Given PETGAS’s net cash position, its equity contribution to the project is unlikely to pose a financial constraint. Assuming a high single-digit to low double-digit equity IRR and a 20-year PPA, we estimate the gas plant could contribute c.RM20m-RM35m in annual share of profit from the JV, equivalent to 1%-2% of FY24 core profit.
Earnings Revision. We incorporate the FY24 annual report figures and included expected earnings contributions from the gas plant, assuming COD is achieved in 2HFY27. As a result, we revise our FY25/FY26/FY27 earnings forecasts by -0.6%/-0.7%/+0.1% respectively.
Valuation and Recommendation. Following the earnings revision and inclusion of Rancha Power in our valuation,we raise our TP to RM17.80 (previously RM17.75), based on sum-of-parts valuation and a three-star ESG rating. Maintain HOLD. Our TP implies a valuation of 18.9x FY25 EPS, approximately 1.5 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 pick 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%. A key catalyst would be the award of a new RGT contract, which would strengthen its long-term earnings visibility.
Risks. Escalation in gas prices and unplanned shutdowns.
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