The bulk of the capex is allocated to Peninsular Gas Utilisation, says CGS-CIMB Research.
PETALING JAYA: Petronas Gas Bhd
’s (PetGas) regulated capital expenditure (capex) under the regulatory period 2 (RP2), which covers the 2023-2025 period, is guided to be above RM2bil.
The bulk of the capex is allocated to Peninsular Gas Utilisation (PGU), according to CGS-CIMB Research in a report following a recent briefing by PetGas’ management.
According to the research firm, PetGas “did not disclose its RP2’s regulated return but guided that it is similar to the other utilities players under regulation”.
It said during PetGas’ IBR RP2 briefing, its management guided that the impact of the lower tariffs could be partly mitigated by Tariff C and revenue adjustments.
“Tariff C is the regulated tariff for the delivery of gas with higher pressure via PGU II Sector 3 Project Compressor Relocation, with an estimated capacity of 200 mmscfd (million standard cubic feet per day),” said CGS-CIMB Research.
The research firm gathered that the overall revenue reduction from PGU under RP2 will likely come to only 2% instead of 5.8% versus RP1, due to the introduction of Tariff C.
For regasification facilities, the foreign exchange movement will be passed through via adjustment on assets value to negate the impact of lower regulated return, it added.
“We gather the Energy Commission will have annual tariff adjustments under the RP2 to reflect changes in foreign exchange and gas prices to mitigate the risk of fluctuations in PetGas’s operational expenses,” said CGS-CIMB Research.
The research firm said its sensitivity analysis revealed that PetGas’ financial year 2023 (FY23) to FY25 forecast regulated earnings could decline by 2% and 3% on lower tariffs for PGU and the Regasification Terminal in Pengerang.
“Nonetheless, FY23’s forecast core net profit is expected to be stronger versus FY22 due to absence of a one-off prosperity tax,” it added.
Meanwhile, Kenanga Research said PetGas earnings stability will continue to anchor its decent dividend yields of 4% to 5%.
However, it notes that the stock’s valuation was already rich at current levels.
“We hold the view that terms stipulated under the RP2 will have a neutral impact on PetGas as a lower weighted average cost of capital is cushioned by a growing regulated asset base, while the yearly adjustments on foreign exchange fluctuation and gas prices will reduce earnings volatility,” it said.
Kenanga Research added it was keeping its forecasts relatively unchanged but tweaked its target price marginally up to RM17.13 (from RM17), while maintaining a “market perform” call.
CGS-CIMB Research on the other hand has a “hold” rating on the stock with a target price of RM16.90.
