Power sector
Maintain overweight: We maintain our overweight call on the sector as ex-Tenaga Nasional Bhd, utilities offer secure yields and stable cash flows. In 2012, Petronas Gas Bhd, our top pick, will complete its regassing terminal which will help alleviate the country’s gas shortage.
PetGas’ Malacca regassing terminal (RGT), will be completed in June/July 2012, bringing in 500 mmscfd of gas. Half will go to the power sector to ease the gas shortage. The sector is receiving circa 1,000 mmscfd of gas, below the 1,350 mmscfd contracted level.
We believe the gas supply could rise by circa 48% to 1,475 mmscfd by 2013. This assumes: (i) successful commissioning of the RGT (+250 mmscfd); (ii) Bekok-C field at full strength (+125 mmscfd); and (iii) gas from the North Malaya basin (+100 mmscfd). This will help alleviate the country’s gas shortage.
While news reports suggest that the first-generation power purchase agreements (PPA) may not be renewed, our analysis shows that this would bring the country’s reserve margin far below the government’s 25% target even after accounting for 6.75GW of scheduled plant-ups. We believe the PPAs will be renegotiated but at lower returns.
PetGas is not subject to procurement risk and its earnings are assured, with 67% of revenues fixed up to FY14. Completion of the Malacca RGT will give the company credibility to own future RGTs should Petroliam Nasional Bhd go ahead with them. Each could add pre-tax profit of about RM200 million or 13% of our FY11 forecast. In addition, PetGas is undergeared with return on equity of only 16% despite a 70% earnings before interest, tax, depreciation and amortisation (Ebitda) margin. A 1% increase in net gearing would free up RM100 million cash or 5 sen per share. — CIMB Research, Jan 13
This article appeared in The Edge Financial Daily, January 16, 2012.
Maintain overweight: We maintain our overweight call on the sector as ex-Tenaga Nasional Bhd, utilities offer secure yields and stable cash flows. In 2012, Petronas Gas Bhd, our top pick, will complete its regassing terminal which will help alleviate the country’s gas shortage.
PetGas’ Malacca regassing terminal (RGT), will be completed in June/July 2012, bringing in 500 mmscfd of gas. Half will go to the power sector to ease the gas shortage. The sector is receiving circa 1,000 mmscfd of gas, below the 1,350 mmscfd contracted level.
We believe the gas supply could rise by circa 48% to 1,475 mmscfd by 2013. This assumes: (i) successful commissioning of the RGT (+250 mmscfd); (ii) Bekok-C field at full strength (+125 mmscfd); and (iii) gas from the North Malaya basin (+100 mmscfd). This will help alleviate the country’s gas shortage.
While news reports suggest that the first-generation power purchase agreements (PPA) may not be renewed, our analysis shows that this would bring the country’s reserve margin far below the government’s 25% target even after accounting for 6.75GW of scheduled plant-ups. We believe the PPAs will be renegotiated but at lower returns.
PetGas is not subject to procurement risk and its earnings are assured, with 67% of revenues fixed up to FY14. Completion of the Malacca RGT will give the company credibility to own future RGTs should Petroliam Nasional Bhd go ahead with them. Each could add pre-tax profit of about RM200 million or 13% of our FY11 forecast. In addition, PetGas is undergeared with return on equity of only 16% despite a 70% earnings before interest, tax, depreciation and amortisation (Ebitda) margin. A 1% increase in net gearing would free up RM100 million cash or 5 sen per share. — CIMB Research, Jan 13
This article appeared in The Edge Financial Daily, January 16, 2012.
