Petronas Gas Berhad - Results In Line Despite Restoration Costs at Putra Heights
Tue, 26-Aug-2025 08:21 am
by Ong Tze Hern • Apex Research

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PETGAS (6033)

Target Price (RM)

17.80

Recommendation

Hold

  • 2QFY25 CNP came in at RM446.8m (-4.6% YoY, -4.1% QoQ), bringing 6MFY25 CNP to RM912.5m (-2.7% YoY). The results were in line with expectations, accounting for 49% of our full-year forecast and consensus estimates.

  • The Group declared a second interim dividend of 16.0sen in 2QFY25 (2QFY24: 16.0sen).

  • The QoQ and YoY decline in CNP was mainly due to weaker Gas Transportation contributions, weighed by c.RM23m repair and restoration costs at Putra Heights.

  • The absence of one-off repair costs, coupled with a one-off RM52m settlement from a dispute with BASF PETRONAS Chemicals, should lift 3QFY25 headline results QoQ.

  • No change to our earnings forecasts. Maintain HOLD recommendation with an unchanged TP of RM17.80, based on sum-of-parts valuation, and a three-star ESG rating.

 

Within Expectations. Excluding net forex gain (-RM12.2m), PPE write-off (+RM9.0m), and other adjustments (-RM0.1m), 2QFY25 core net profit (CNP) came in at RM446.8m (-4.6% YoY, -4.1% QoQ), bringing 6MFY25 CNP to RM912.5m (-2.7% YoY). The results were in line with expectations, accounting for 49% of our full-year forecast and consensus estimates.

 

Dividend Maintained. The Group declared a second interim dividend of 16.0sen in 2QFY25 (2QFY24: 16.0sen), bringing YTD DPS to 32.0sen (1HFY24: 32.0sen).

 

QoQ. 2QFY25 CNP dipped 4.1% QoQ, dragged by weaker contributions from the Gas Transportation and Gas Processing segments, as well as lower share of profit from JVs and associates. Gas Transportation’s operating profit plunged 16.3%, weighed by c.RM23m repair and restoration costs at Putra Heights. Gas Processing’s operating profit declined 3.4% due to higher operating expenses. Meanwhile, JV and associate contributions fell 23.7% on higher maintenance costs. These declines more than offset stronger Utilities segment earnings (operating profit +22.6%), supported by lower fuel gas costs (MRP 2QFY25: RM39.05/MMBtu vs 1QFY25: RM40.34/MMBtu), together with higher other income, which more than doubled on the back of a c.RM30m insurance claim unrelated to the Putra Heights incident.

 

YoY. 2QFY25 CNP declined 4.6% YoY, mainly due to weaker Gas Transportation contributions, which more than offset improvements in Utilities. Operating profit in Gas Transportation fell 23.4% on reduced tariffs (effective 1 Jan 2025) and Putra Heights repair costs. In contrast, Utilities operating profit rose 14.2%, supported by lower fuel gas costs in line with MRP movements.

 

YTD. 6MFY25 CNP declined 2.7% YoY, with Gas Transportation again the main drag, more than offsetting stronger contributions from JVs and associates. Segmental operating profit in Gas Transportation dropped 17.8% on tariff reductions and one-off Putra Heights repair expenses mentioned above. Conversely, share of profit from JVs and associates soared 37.1%, underpinned by lower maintenance costs.

 

Key Takeaways from Briefing:

Pipeline replacement. Restoration of Putra Heights gas pipeline is being executed in two phases. Phase 1 (temporary bypass pipeline) was completed, with gas supply resuming on 1 July 2025, where costs were expensed. Phase 2 (permanent pipeline) is targeted for completion by 3Q 2026. PETGAS is engaging the Energy Commission to include the permanent pipeline replacement under RAB, likely treated as unexpected Capex under the IBR framework.

 

Profit impact. Management confirmed that RM9.0m PPE write-off in 2QFY25 included pipeline and hydrocarbon losses from the Putra Heights incident, with no further write-offs expected. Temporary repairs cost c.RM26m, of which c.RM23m was recognised in 2QFY25. Importantly, no third-party liability claims have emerged. Estimated total profit impact remains at RM60m, though management flagged potential additional contractual costs. No insurance claims related to the incident have been received to date.

Outlook. Looking ahead, IGC and fuel gas costs are expected to edge higher QoQ in tandem with an anticipated increase in MRP (3QFY25: RM39.24/MMBtu vs 2QFY25: RM39.05/MMBtu). Nonetheless, the absence of one-off repair costs, coupled with a one-off RM52m settlement from a dispute with BASF PETRONAS Chemicals, should lift 3QFY25 headline results QoQ. Medium terms earnings growth will be supported by (i) RP3 for Gas Transportation and Regasification segments (2026-2028), driven by higher regulated asset base and increasing gas demand, and (ii) stronger contributions from the JVs, particularly from Sipitang Power Plant (52MW), Kimanis Power (Dua) plant (100MW), and Labuan Power plant (120MW).

 

Earnings Revision. No change to forecasts.

 

Valuation and Recommendation. We maintain our HOLD recommendation with an unchanged TP of RM17.80, based on sum-of-parts (SOP) valuation, and a three-star ESG rating. Our TP implies 18.1x FY26F EPS, approximately 1 standard deviation above the 5-year historical mean forward PE. A potential catalyst would be the award of a new regasification terminal (RGT) contract, which would enhance earnings visibility. Notably, our valuation has yet to incorporate the proposed third RGT at Lumut (13MP), where PETGAS is a frontrunner given its track record at Sungai Udang and Pengerang. This could add c.RM2/share to our valuation assuming 500mmscfd capacity. 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%. 

 

Risks. Escalation in gas prices and unplanned shutdowns.

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