KUCHING: Petronas Gas Bhd (Petronas Gas) has been projected by analysts have neutral earnings impact from the newly implemented Third Party Access (TPA) system.
As per Petronas Gas’ filing on Bursa Malaysia, the TPA system will allow multiple entities to have access to and utilise the gas facilities available in Malaysia on the same terms and conditions.
According to the filing, with TPA system in place, it is envisaged that there will be healthy competition among the players thus ensuring reliable and sustainable gas supply to consumers.
“We expect neutral earnings impact from the TPA as the higher fixed Reservation Charge of circa RM124 million is offset by the lower Base tariff against our assumptions of RM1.232 per giga joule (GJ) for the Peninsular Gas Utilisation (PGU) and US$1.00 per one million British thermal unit (mmbtu) for both Melaka Regasification Terminal (RGT) and Pengerang RGT,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said.
“Besides, the RM108 million purchase of linepack and heel will also reduce its cash position mildly.”
Looking at the group’s gas transportation segment, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) noted that the tariff was reduced to RM1.072 per GJ from RM1.248 per GJ under the new IBR framework.
“The PGU system contributes about 23 per cent and 40 per cent in terms of revenue and profit respectively,” it said.
“Assuming that the volume remains the same, we anticipate that the revenue for the segment to reduce by 14.1 per cent.”
MIDF Research further noted that similarly, the regasification segment will also be impacted by the newly revised tariff.
However, due to the lower contribution from the segment (circa 10 per cent) compared against the gas transportation, the research arm opined that the segment would be minimally impacted by the new tariff.
As for the gas processing segment, MIDF Research pointed out that revenue is expected to grow by 8.3 per cent as Petronas Gas’ parent, Petroliam Nasional Bhd (Petronas) has agreed to pay a fixed reservation charge of RM2,524 per one million standard cubic feet (mmscf), from RM2,330 per mmscf previously, for gas processing as both enter into the second gas processing agreement (GPA) starting in January 1, 2019.
“This also includes a 20sen flow charge for each gigajoule of dry gas processed above the committed target of 1,750 mmscf per day throughout the GPA term.
“Hence, we opine that this will bode well for Petronas Gas as the gas processing segment accounts for about 24 per cent and 23 per cent of Petronas Gas’ revenue and profit respectively.”
All in, MIDF Research reduced its earnings estimate for financial year 2019 (FY19F) by 4.5 per cent to account for the expected lower revenue coming from both the gas transportation and regasification segments. The research arm’s net profit estimates for FY19F amounted to RM1.8614 billion.
As for Kenanga Research, while maintaining FY18 estimates, it trimmed FY19 forecast slightly by 0.9 per cent to reflect this announcement. The research arm’s core net profit for 2019E amounted to RM1.982 billion.
Nonetheless, the research arm remained optimistic on the company as the TPA offers transparency with detailed RGT tariff, which was not made known previously.
“And, the announcement also reaffirmed our view on the TPA which we always believe the Incentive Based Regulation (IBR) framework will be earnings neutral to Petronas Gas and this announcement will also clear any concerns that TPA could severely impact its earnings on lower rate,” Kenanga Research said.
“Like its sister companies, Petronas Gas 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.”