PETGAS–Fundamental Analysis (15 Mar 2016)

Fundamental Analysis as of FY15 – http://www.slideshare.net/lcchong76/petgas-fundamental-analysis-fy15

Excel – https://onedrive.live.com/redir?resid=D96B5F401BDB2A62!77166&authkey=!AELrFb1KeD4pQO0&ithint=file%2cxlsx

Latest Financial – Q4 2015 Financial Report (24 Feb 2016) http://www.bursamalaysia.com/market/listed-companies/company-announcements/5008681

FY15 Q4 Results Highlight:

  • PetGas’ 4Q15 earnings slumped by -27.4%yoy to RM414.5m. Its FY15 normalised earnings declined by -4%yoy to RM1,736.5m.
  • The huge variance in its reported vis-à-vis its normalised earnings was due to the recognition of investment tax asset from the investment tax allowances granted for its plant rejuvenation and revamp activities totalling RM443.1m (in 2Q15) and also forex loss charges of RM203.1m (in 3Q15).
  • 25 Feb 2016 – Gas processing. Despite segment revenue rising by +3.6%yoy to RM1,533.6m, segment profit declined by -0.7%yoy to RM697m. Segment margin contracted by +2.0ppts to 45.4%. The rise in revenue was largely due to higher reservation charges but was partially offset by lower performance-based scheme income due to its inability to achieve certain performance benchmarks and higher plant repair and maintenance cost.
  • 25 Feb 2016 – Gas transportation. For the gas processing segment, both segment revenue and profit staged a rise, increasing by +1.9%yoy and +0.2%yoy to RM1,311.6m and RM1,009.1m respectively. Segment margin however, contracted by -1.3ppts to 76.9%. The rise in revenue and the corresponding profit is premised on higher transportation capacity booked by PETRONAS.
  • 25 Feb 2016 – Utilities. On the other hand, the Utilities segment disappointed with both revenue and profit declining by -3.5%yoy and -30.7%yoy to RM973.6m and RM135.8m respectively. Profit margin also contracted by -5.5ppts to 13.9%. Management guided that this is due to lower offtake by customers.
    Regasification. Despite recording higher revenue of RM637.1m (+1.5%yoy), segment profitability shrank slightly by -3.4%yoy to RM297.6m due to higher lease and depreciation expenses.

Valuation:

In my opinion, fair value of PETGAS range from 20.5 to 23.5. Uncertainty risk of fair value is from MEDIUM to VERY HIGH.

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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