KUALA LUMPUR: The Incentive Base Regulation (IBR) framework, which offers transparency and an efficiency-driven reward system, is positive for both Petronas Gas and end-users, says Kenanga research.
The research house said in its Wednesday research report that the long-awaited Third Party Access (TPA) has finally been implemented and should clear earlier concerns of a severe rate cut.
"Like its sister companies, PETGAS is one of the few stocks performing well in share price performance last year as investors seek for earnings quality and sustainability in time of uncertainty like the present times.
"We believe with this announcement, which is better than what the market had expected, the stock which was suppressed in the past two years, will be able to re-rate to its pre-2017 period."
Kenanga cut 1% of Petronas Gas's FY19 estimates and post-earnings adjustment, it maintained its outperform call with target price reduced to RM22.65 /SoP share from RM22.80/SoP share previously.
To recap, Petronas Gas announced on Monday that the government has prescribed the IBR framework in setting the Base Tariff in 2019 for the Peninsular Gas Utilisation at RM1.072/GJ, Melaka RGT at RM3.518/mmbtu and Pengerang RGT at USD0.637/mmbtu.
"In addition, it also revealed the 2nd term of remuneration structure of Gas Processing Agreement (GPA) of: (i) fixed Reservation Charge of RM2,524/mmbtu from RM2,300/mmbtu, (ii) flow rate charge of RM0.20/GJ of dry gas processed above the committed target of 1,750mmbtu per day, (iii) performance incentive for higher overall equipment effectiveness performance targets for Ethane, Propane, Butane as well as the production target for Ethane, and (iv) penalty and incentive system for operating within the +5%/-5% range for Agreed Operating Parameters," said Kenanga.
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