PETGAS–Fundamental Analysis (2 Nov 2015)

Fundamental Analysis as of FY14 – http://www.slideshare.net/lcchong76/petgas-fundamental-analysis-fy14

Excel – http://1drv.ms/1k3P0Ap

Latest Financial – Q3 2015 Financial Report (30 Oct 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4908393

Other References:

  1. 32nd PGB Annual General Meeting​ – Presentation Pack
  2. Quarter ​3 Financial Year 2015
  3. Corporate Briefing Pack 2015
  4. Petronas Gas Plant Visit 2015

FY15 Q3 Results Highlight:

  • 3Q15 core earnings grew 5% QoQ to RM472.5m from RM451.8m on the back of 5% hike in revenue. This was driven by the earnings recovery in Utilities Segment which saw its operating profit being doubled to RM42.5m from RM21.5m as higher offtake by clients, boosted the segment’s revenue by 18% to RM256.8m from RM217.5m. While Gas Processing (GP) earnings normalised to RM172.7m from RM199.6m previously, Gas Transportation (GT) posted flattish earnings. Earnings from Regasification (RGT) improved RM6.3m or 9% QoQ. On other hand, associates and JV incomes improved significantly to RM23.5m from RM3.3m in 2Q15. (Kenanga 2 Nov 2015)
  • YoY, 3Q15 core income rose 9% from RM435.1m while revenue inched up slightly by 1%. GT posted 2% hike in operating profit, despite flattish topline, led by lower operating cost while RGT’s earnings rose 6% on the back of 8% jump in revenue due to higher storage fees. However, both GP and Utilities which saw their operating profits falling 3% and 6%, respectively, due to higher plant maintenance costs. Meanwhile, associate and JV income soared 54% from RM15.2m previously. (Kenanga 2 Nov 2015)
  • YTD, 9M15 core earnings rose 9% to RM1.40b from RM1.29b while revenue inched up 1% to RM3.32b from RM3.28b. GP reported operating profit which grew 9% as revenue rose 3%, on lower operating costs, while GT’s earnings expanded 3% on the back of 3% hike in revenue as business volume increased. However, both Utilities and RGT reported lower earnings by 19% and 2%, respectively, as the former faced lower offtake while the latter incurred higher maintenance costs.(Kenanga 2 Nov 2015)
  • High unrealised foreign exchange (forex) loss arising from reporting translation on RGTSU finance lease liabilities.
    • This was resulted from severe weakening of MYR against USD during the quarter and period.
  • Highest ever Ethane OEE achievement resulted from continuous effort on asset integrity.
  • Upward revision of fuel gas tariff by RM1.50/mmbtu
    • Effective 1 July 2015 from RM15.20/mmbtu to RM16.70/mmbtu.
    • The higher cost was passed through to all utilities customers except electricity. There is no impact to Gas Processing and Transportation segments as fuel gas costs are free for utilisation within Agreed Operating Parameters.
  • PGB had on 1 April 2015, recognised DTA of RM407.4M arising from Investment Tax Allowance (ITA) granted for the overall Plant Rejuvenation and Revamp project (PRR).

Valuation:

  • Absolute EY%:
    • Trailing:
      • FY14 (EPS: 0.813) – 23.010 (Uncertainty Risk: HIGH)
      • R4Q (EPS: 1.084) – 30.682 (Uncertainty Risk: LOW)
    • Forward:
      • FY15 (EPS: 0.94 ± 5%) – From 25.296 to 27.959 (Uncertainty Risk: MEDIUM)
      • FY16 (EPS: 0.942 ± 5%) – From 25.329 to 27.995 (Uncertainty Risk: MEDIUM)
    • EPS applied to reach the current stock price (22.7): 0.802
  • Dividend Drill Return Model (Beta Version)
    • Total Projected Return: 9.62%
    • Hurdle Rate: 10.89%
    • To meet the hurdle rate, purchase below: 15.289
    • Uncertainty Risk: EXTREME
  • In my opinion, fair value of PETGAS range from 25 to 28. Uncertainty risk of fair value is MEDIUM.

Going Forward:

The stock price movement of PetGas has been fairly resilient, trading sideways within the band of RM21-23 per share since mid-August 2014 despite the >-50% drop in global crude oil prices

Upside room of this stock is slightly limited due to a lack of fresh catalysts (the Pengerang regasification terminal will only come onstream at the end of the decade)

Valuations may not very compelling, but not bad. PETGAS still appeals to funds seeking earnings stability

I will continue to hold PETGAS, and may accumulate PETGAS in the future.

At the time of writing, I owned shares of PETGAS.

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