PETRONAS Gas Bhd (PetGas) will weather its immediate challenges over the longer-term given its long-term contracts and prospected bids, sustained and positive revenue growth, as well as near 100% plant utilisation across all its business segments, said one local research house.

Having said that, MIDF Research has maintained its ‘Neutral’ call on the company’s stock, with a revised target price of RM17.27 from the earlier RM17.65.

“The gas market continues to be unpredictable and volatile, more so with the upcoming implementation of Russian energy sanctions as well as demand slowdown from China over its Covid-19 policies. Additionally, the volatility of foreign-exchange rates, the cost of raw materials, and the price of fuel gas in the region continue to exert inflationary pressures,” it said when commenting on the company’s latest financial figure.

PetGas saw an increase in revenue but a big drop in net profit for the third quarter ended Sept 30, 2022 (3Q22).

Revenue was up 9.6% to RM1.56 billion from the corresponding quarter a year earlier, mainly contributed by higher revenue from the utilities segment as a result of higher product prices in line with higher fuel gas prices, according to its exchange filing.

Its 3Q22 net profit plunged 26.7% to RM425.82 million due to lower contribution from all segments following higher operating costs, mainly relating to fuel gas and internal gas consumption costs.

For the first nine months of FY22, PetGas revenue was up 9% to RM4.53 billion compared to the year before mainly driven by higher revenue from the utilities segment on the back of higher product prices and higher electricity sales volume recorded. For the same period, net profit dropped 19.9% to RM1.23 billion, partly due to a higher effective tax rate with the imposition of prosperity tax for the 2022 assessment year.

A number of other research houses expect PetGas earnings to remain impacted by the soaring fuel gas cost (Malaysia Reference Price), higher effective tax rate, and weakening ringgit against the US dollar.

BIMB Securities Research has maintained a ‘Hold’ call on PetGas with a target price of RM18.48 which implies 21.7x FY22F price-to-earnings ratio (P/E).

On its part, Kenanga Investment Research has maintained its ‘Market-perform’ call with a target price of RM17 and likened PetGas for its earnings stability of which above 90% is safeguarded by the incentive-based regulation framework, and is expected to remain so during the coming regulatory period 2, anchoring decent dividend yields of 4%-5%.

Hong Leong Investment Bank (HLIB) Research has also maintained a ‘Hold’ call on PetGas with an unchanged target price of RM17.85 based on the sum-of-the-parts (SOP).

It said PetGas’ utilities segment has seen some improvement in current quarter with improved margins after renewing some long-term contracts with more favourable terms (including cost past-through clause), given that existing contracts are affected by increasing fuel gas price while tariff pricing is matched to Tenaga Nasional Bhd’s fixed tariff pricing.

At 4.15pm, the counter was trading at RM16.86 valuing the group at RM33.32 billion. — TMR / pic source: Petronas Gas Bhd