PETALING JAYA: Petronas Gas Bhd
(PetGas) appears well-positioned to capitalise on the anticipated surge in gas demand, underpinned by Malaysia's transition from coal to natural gas and growing power requirements from data centres. As the country's largest gas infrastructure owner and operator, the group has been eyeing new opportunities to expand its regasification, pipeline facilities, and power plant capacity.
According to TA Research, PetGas was “positioned well as one of the key upstream proxies to the transition from coal to gas power as well as data centre-driven demand for power.” The brokerage maintained its “buy” call on PetGas with an unchanged target price of RM20.30 per share, citing a decent dividend yield of 4.7% to 5.5% throughout its forecast horizon.
Hong Leong Investment Bank (HLIB) Research expected PetGas' earnings to remain stable as its business segments were largely protected under the Regulatory Asset Base (RAB) structures, with the utilities segment somewhat shielded by the Imbalance Cost Pass-Through (ICPT) mechanism.
“We expect PetGas to continue to maintain its dividend payout (given its healthy free cash flow of RM1.5bil-RM2bil per annum and net cash position of 69.4 sen per share),” HLIB Research said. It maintained a “hold” call with an unchanged target price of RM17.78.
Meanwhile, CGSI Research highlighted PetGas' defensive earnings profile from its ownership of gas infrastructure assets in Malaysia. While earnings growth was seen as “lacklustre”, the stock still offered “attractive yields of 4%-5% in 2025-2026, backed by visible free cash flows (FCFs) and a strong net cash balance sheet of RM748mil at the end of the fourth quarter of 2024.”
The research house kept its “hold”' recommendation with a target price of RM17.50.
MaybankIB Research also maintained a cautious stance, lowering its 2025 and 2026 net profit forecasts by 1% and 3%, respectively, on “housekeeping” adjustments, and introduced 2027 estimates. It reduced its target price to RM17.60 from RM18 previously, citing management’s search for new projects, including two recently secured power plant concessions in Sabah and Labuan, which had yet to be reflected in its forecasts.
PetGas had been making strides in new projects, receiving the Letter of Notification (LON) for its 120-megawatt (MW) gas power plant in Labuan last Friday. The project was set to progress into the construction phase by the second half of 2025. The group also broke ground on its fast-track 100MW gas plant in Kimanis, Sabah, in November 2024, with construction progressing smoothly and commercial operations expected by March 2026.
The Kimanis plant, developed via a 60:40 joint venture with NRG Consortium Sabah, a subsidiary of Yayasan Sabah, was a brownfield development next to the existing Kimanis power plant, involving capital expenditure (capex) of RM700mil. The Labuan project, a greenfield development under a similar joint venture with a Sabah state-owned company, had a higher expected capex of just under RM1bil.
Management had also been evaluating the need for a new regasification terminal (RGT) within the next three to four years to support Malaysia’s rising gas demand. PetGas’ current two RGTs at Sungai Udang and Pengerang were operating at approximately 60% utilisation, with full capacity anticipated within the next one to two years.
The group’s utilities segment could potentially benefit from a tariff revision by Tenaga Nasional Bhd in the second half of 2025. “Provided fuel gas cost remains stable, we believe the utilities segment could see improved earnings in the latter part of 2025,” said TA Research.
In the gas processing segment, PetGas would enter the second year of its third Term Gas Processing Agreement (GPA) with parent company Petroliam Nasional Bhd. The agreement entailed a higher fixed fee of RM1.7bil (up from RM1.61bil previously) and a performance fee of RM120mil (versus RM90mil previously). However, part of the benefit might be offset by rising operating expenses as the plants aged.
Looking ahead, government projections indicated Malaysia’s power demand could double by 2040, which, if gas maintained its 40% share of the energy mix, would drive substantial long-term demand for gas and supporting infrastructure.
While PetGas’ defensive earnings profile suggested limited near-term growth, its strategic investments and positioning in the gas infrastructure space provided a stable outlook, bolstered by steady dividends and the potential for expansion amid Malaysia’s energy transition.
