Petronas Gas Bhd (Feb 2, RM15.88)
Maintain buy at RM15.68 with revised fair value of RM17.62 (from RM15.30): We maintain our “buy” recommendation on Petronas Gas (PetGas) with a higher sum-of-parts- (SOP) based fair value of RM17.62 against RM15.30 previously. This implies an FY12F price-earnings ratio (PER) of 22 times.
Our higher SOP largely stems from a one percentage point increase in our terminal growth rate to 5% for the group’s core gas processing and transport cash flows and 40% increase in the discounted cash flow of the Lekas regassification terminal (RGT) in Malacca.
We have also raised FY12F to FY14F net profit by 2% to 4% by incorporating the contributions of the group’s RM1.2 billion investment in the Lekas RGT.
While details are still sketchy after our recent company visit, the group’s parent Petroliam Nasional Bhd is evaluating the viability of additional regassification projects in Pengerang, Johor; Lumut, Perak; and Lahad Datu, Sabah, after the completion of the Lekas terminal by August this year.
The RM60 billion Refinery and Petrochemicals Integrated Development (Rapid) programme, encompassing power generation capacity of 1,200MW and other manufacturing processes in Pengerang is likely to involve an RGT project much larger than the over RM2 billion Malacca terminal.
The group is also interested in additional power generation projects after the 60%-owned 300MW Kimanis power plant in Sabah is completed by end-2013. As a benchmark, a 1,000MW combined-cycle gas-fired power plant will cost around RM3 billion to RM3.5 billion. Recall that Petronas is currently one of the 47 prospective bidders for 4,500MW of new power plants in Peninsular Malaysia.
While it is still premature to provide any estimates in earnings contribution to the group for any future RGT or power projects at this juncture, we estimate that every additional RM1 billion in investment could raise PetGas’ SOP by 16 sen, assuming a project internal rate of return of 9%, equity discount rate of 10% and debt-to-equity ratio of 80:20.
We remain positive on PetGas due to: (i) the global shift from nuclear to natural gas for power generation; (ii) the government’s strategy to gradually remove natural gas subsidies by 2015, which will lead to a more viable pricing mechanism for electricity generation; (iii) multiple domestic regassification projects; and (iv) expanding power generation ventures.
The stock is currently trading at an attractive CY12F PER of 20 times, below its 2009 peak of 22 times. We expect further news flow on LNG projects to further catalyse the stock’s re-rating process. — AmResearch, Feb 2
This article appeared in The Edge Financial Daily, February 3, 2012.
Maintain buy at RM15.68 with revised fair value of RM17.62 (from RM15.30): We maintain our “buy” recommendation on Petronas Gas (PetGas) with a higher sum-of-parts- (SOP) based fair value of RM17.62 against RM15.30 previously. This implies an FY12F price-earnings ratio (PER) of 22 times.
Our higher SOP largely stems from a one percentage point increase in our terminal growth rate to 5% for the group’s core gas processing and transport cash flows and 40% increase in the discounted cash flow of the Lekas regassification terminal (RGT) in Malacca.
We have also raised FY12F to FY14F net profit by 2% to 4% by incorporating the contributions of the group’s RM1.2 billion investment in the Lekas RGT.
While details are still sketchy after our recent company visit, the group’s parent Petroliam Nasional Bhd is evaluating the viability of additional regassification projects in Pengerang, Johor; Lumut, Perak; and Lahad Datu, Sabah, after the completion of the Lekas terminal by August this year.
The RM60 billion Refinery and Petrochemicals Integrated Development (Rapid) programme, encompassing power generation capacity of 1,200MW and other manufacturing processes in Pengerang is likely to involve an RGT project much larger than the over RM2 billion Malacca terminal.
The group is also interested in additional power generation projects after the 60%-owned 300MW Kimanis power plant in Sabah is completed by end-2013. As a benchmark, a 1,000MW combined-cycle gas-fired power plant will cost around RM3 billion to RM3.5 billion. Recall that Petronas is currently one of the 47 prospective bidders for 4,500MW of new power plants in Peninsular Malaysia.
While it is still premature to provide any estimates in earnings contribution to the group for any future RGT or power projects at this juncture, we estimate that every additional RM1 billion in investment could raise PetGas’ SOP by 16 sen, assuming a project internal rate of return of 9%, equity discount rate of 10% and debt-to-equity ratio of 80:20.
We remain positive on PetGas due to: (i) the global shift from nuclear to natural gas for power generation; (ii) the government’s strategy to gradually remove natural gas subsidies by 2015, which will lead to a more viable pricing mechanism for electricity generation; (iii) multiple domestic regassification projects; and (iv) expanding power generation ventures.
The stock is currently trading at an attractive CY12F PER of 20 times, below its 2009 peak of 22 times. We expect further news flow on LNG projects to further catalyse the stock’s re-rating process. — AmResearch, Feb 2
This article appeared in The Edge Financial Daily, February 3, 2012.
