petronas gas 160211

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Price RM22.32Fair Value RM24.4052-week High/Low RM23.98/RM20.20

Key Changes

Fair valueEPS

YE to Dec FY14 FY15F FY16F FY17F

Revenue (RM mil) 4,391.7 4,518.9 4,637.0 4,732.6Core net profit (RM mil) 1,843.2 1,779.8 1,848.8 1,906.7FD Core EPS (sen) 93.1 89.9 93.4 96.4FD Core EPS growth (%) (11.3) (3.4) 3.9 3.1Consensus Net Profit (RM mil) - 1,815 1,866 1,906DPS (sen) 55.0 60.0 62.0 65.0PE (x) 24.0 24.8 23.9 23.2EV/EBITDA (x) 15.4 14.4 13.8 13.2Div yield (%) 2.5 2.7 2.8 2.9ROE (%) 17.7 16.4 16.2 15.8Net Gearing (%) 2.3 nm nm nm

Stock and Financial Data

Shares Outstanding (million) 1,978.7Market Cap (RMmil) 44,165.3Book Value (RM/share) 5.32P/BV (x) 4.2ROE (%) 17.7Net Gearing (%) 2.3

Major Shareholders Petronas (60.7%)EPF (12.1%)Kumpulan Wang Persaraan (5.6%)

Free Float 13.0 Avg Daily Value (RMmil) 26.4

Price performance 3mth 6mth 12mth

Absolute (%) (2.6) 2.5 1.1

Relative (%) (0.2) 4.9 11.5

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PTG M K FBM KLCI Index

OIL & GAS

PETRONAS GAS(PTG MK EQUITY, PGAS.KL) 11 Feb 2016

Lahad Datu RGT aborted

Company report HOLD

Alex Goh

[email protected]

03-2036 2280

(Maintained)

Rationale for report : Comp any upd ate

Investment Highlights

We maintain our HOLD rating on Petronas Gas (PGas)with an unchanged fair value of RM24.40/share, based on

our sum-of-parts valuation. This implies an FY16F PE of

26x.

PGas and Sabah Energy Corp have mutually decided to

terminate the proposed regasification terminal (RGT) atLahad Datu, Sabah following prolonged uncertainties

concerning the project.

On September 2013, PGas had offered Sabah Energy toacquire up to a 20% equity stake in the project, which was

expected to be smaller than the 530mil mmscfd Melaka

RGT.

The Star reported that the facility, which would have asend-out capacity of 0.76mil tonnes per annum vs. the

Melaka RGT’s 3.8mil tonnes, we earlier scheduled for

completion in 2015.

However, the Lahad Datu insurgency in February 2013 ledto an indefinite suspension of the project. Hence, securityconcerns and the current low crude oil prices

environment are likely to be main reasons for the project

abortion.

Our fair value and forecasts are unchanged as we had notincorporated any contributions from the proposed Lahad

Datu regasification terminal, given that management had

not given any guidance of when the project would have

commenced.

The group’s next phase of growth will be contributed bythe group’s second LNG regasification plant in

Pengerang, recently announced and targeted to beoperational by 4QFY17.

As the Pengerang RGTP’s capacity is similar to theexisting Malacca regasification facility’s 530mil mmscfd,

we expect the Pengerang RGTP to contribute

approximately RM300mil per annum to the group’s EBIT

upon commencement of operations.

PGas will also be involved in the development of an airseparation unit in a JV with Linde, which is expected to

be used for the production of oxygen and nitrogen. A

final investment decision is expected to be reached by

3QFY15 and it is targeted to be completed by 4QFY18.

The stock currently trades at an FY15F PE of 24x belowits 2-year peak of 25x, while dividend yield remains

decent at 2-3%.

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Petronas Gas 11 Feb 2016

AmInvestment Bank Bhd 2

EXHIBIT 1: PB BAND CHART EXHIBIT 2: PE BAND CHART

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EXHIBIT 3: FINANCIAL DATA

Income Statement (RMmil, YE 31 Dec) FY13 FY14 FY15F FY16F FY17F

Revenue 3,892.1 4,391.7 4,518.9 4,637.0 4,732.6EBITDA 2,585.8 2,892.1 3,027.7 3,106.8 3,170.8Depreciation/Amortisation (723.9) (786.9) (788.5) (810.5) (832.5)Operating income (EBIT) 1,862.0 2,105.2 2,239.2 2,296.3 2,338.4

Other income & associates 42.8 288.7 126.8 134.0 141.0Net interest (8.3) (39.4) (24.1) 2.3 29.4Exceptional items - - - - -Pretax profit 1,896.4 2,354.5 2,341.9 2,432.6 2,508.8Taxation 182.5 (512.4) (562.1) (583.8) (602.1)Minorities/pref dividends - 1.1 - - -Net profit 2,078.9 1,843.2 1,779.8 1,848.8 1,906.7Core net profit 2,078.9 1,843.2 1,779.8 1,848.8 1,906.7

Balance Sheet (RMmil, YE 31 Dec) FY13 FY14 FY15F FY16F FY17F

Fixed assets 10,611.1 10,858.5 10,570.0 10,259.5 9,927.0Intangible assets - - - - -

Other long-term assets 934.1 1,112.2 1,232.8 1,360.2 1,494.1Total non-current assets 11,545.2 11,970.6 11,802.8 11,619.7 11,421.2Cash & equivalent 927.1 637.7 1,538.2 2,406.6 3,291.0

Stock 38.6 43.4 44.6 45.8 46.8Trade debtors 711.5 608.7 626.4 642.7 656.0Other current assets - - - - -Total current assets 1,677.2 1,289.8 2,209.2 3,095.1 3,993.7Trade creditors 1,014.4 668.2 687.5 705.5 720.0Short-term borrowings 17.7 21.0 - - -Other current liabilities 107.3 99.9 109.6 113.9 117.4Total current liabilities 1,139.5 789.1 797.1 819.4 837.5Long-term borrowings 824.1 861.2 960.1 964.1 968.1

Other long-term liabilities 993.3 1,041.1 1,093.2 1,147.8 1,205.2Total long-term liabilities 1,817.4 1,902.3 2,053.3 2,111.9 2,173.3Shareholders’ funds 10,265.7 10,533.9 11,126.5 11,748.4 12,368.9Minority interests (0.2) 35.1 35.1 35.1 35.1BV/share (RM) 5.19 5.32 5.62 5.94 6.25

Cash Flow (RMmil, YE 31 Dec) FY13 FY14 FY15F FY16F FY17F

Pretax profit 1,896.4 2,354.5 2,341.9 2,432.6 2,508.8Depreciation/Amortisation 723.9 786.9 788.5 810.5 832.5Net change in working capital (8.8) (240.6) 10.2 4.7 3.9Others (1,049.4) (730.0) (630.4) (683.4) (735.8)

Cash flow from operations 1,562.1 2,170.7 2,510.1 2,564.3 2,609.4Capital expenditure (1,000.0) (500.0) (500.0) (500.0) (500.0)Net investments & sale of fixed assets - - - - -Others - - - - -Cash flow from investing (1,000.0) (500.0) (500.0) (500.0) (500.0)Debt raised/(repaid) - - - - -

Equity raised/(repaid) - - - - -Dividends paid (1,088.3) (1,088.3) (1,187.2) (1,226.8) (1,286.2)Others - - - - -Cash flow from financing (1,088.3) (1,088.3) (1,187.2) (1,226.8) (1,286.2)

Net cash flow (526.2) 582.4 822.9 837.5 823.2Net cash/(debt) b/f 1,878.2 619.9 85.3 (244.5) 578.1

Net cash/(debt) c/f 85.3 628.3 1,427.0 2,266.9 3,119.5

Key Ratios (YE 31 Dec) FY13 FY14 FY15F FY16F FY17F

Revenue growth (%) 8.8 12.8 2.9 2.6 2.1EBITDA growth (%) 12.1 11.8 4.7 2.6 2.1

Pretax margin (%) 48.7 53.6 51.8 52.5 53.0Net profit margin (%) 53.4 42.0 39.4 39.9 40.3Interest cover (x) 223.6 53.4 92.8 nm nmEffective tax rate (%) 9.6 21.8 24.0 24.0 24.0Dividend payout (%) 52.4 59.0 66.7 66.4 67.5Debtors turnover (days) 54 55 50 50 50Stock turnover (days) 4 3 4 4 4Creditors turnover (days) 89 70 55 55 55

Source: Company, AmInvestment Bank Bhd estimates

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EXHIBIT 4: SUM-OF-PARTS BREAKDOWN

Source: AmInvestment Bank Bhd

Equity stake Methodology RMmil %

Present v alue of PGas' operating cash flow s 100 DCF at equity discount rate of

8%, terminal grow th at 5%

46,334.8 96.0

Gas Malay sia 15 Market price 500.8 1.0

300MW Kimanis pow er plant 60 Project IRR at 9%, equity

discount rate of 9%, 80:20

Debt:equity

168.0 0.3

3.8million tonne capac ity Melaka regassi fication fac ility -Package 100 Projec t IRR at 9%, equity

discount rate of 9% for RM1.8bil

of Package 2&3

569.8 1.2

490mmscfd Pengerang regasification facility 65 Project IRR at 9%, equity

discount rate of 9% for RM2.7bil

555.6 1.2

70km additional pipeline from PGU to Pengerang Integrated Com 100 Project IRR at 9%, equity

discount rate of 6% for RM291mil

74.0 0.2

Net cash as at 31 Dec 2013 85.3 0.2

Total sum-of-parts (SOP) 48,288.3 100.0

No of shares 1,978.7

SOP value (RM/share) 24.40

Implied FY16 PE 26

Published by

AmInvestment Bank Bhd (23742-V) (A member of the Am Bank Group)1 5 t h F l o o r B a n g u n a n A m B a n k G r o u p55 Jalan Raja Chulan50200 Kuala LumpurTel: ( 03)2070-2 444 ( r esearch)F a x : ( 0 3 ) 2 0 7 8 - 3 1 6 2

Printed by

AmInvestment Bank Bhd (23742-V) (A member of the AmBank Group)1 5 t h F l o o r B a n g u n a n A m B a n k G r o u p55 Jalan Raja Chulan50200 Kuala LumpurTel: ( 03)2070-2 444 ( r esearch)F a x : ( 0 3 ) 2 0 7 8 - 3 1 6 2

The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this

report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a

solicitation to buy any securities. The directors and em ployees of AmInvestment Bank Bhd may from time to time have a position in or with

the securities mentioned herein. Members of the AmBank Group and their affiliates may provide services to any company and affiliates of

such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are

reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not

represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise

from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to

change without notice.

For AmInvestment Bank Bhd

Benny Chew

SR VP Equity Research

petronas gas 160211

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