A cash proxy?
Demonstrating share price resilience
PTG is not a beneficiary of higher gas prices. Nevertheless, its association with gas, coupled with a largely stable earnings trajectory post FY22 (step-down from Cukai Makmur, priced-in) has allowed share price to remain relatively resilient amid the current market rout. Maintain HOLD with an unchanged MYR17.20 TP. On a relative basis, we marginally prefer GMB (GMB MK, HOLD, CP: MYR2.63, TP: MYR2.90) among the gas utilities.
Stable post FY22 step-down
Recall the regulated asset base (RAB) of PTG’s transport segment is derived from a sliding weighted average of depreciated replacement value and historical cost. We currently assume a c.20% tariff decline in RP2 (FY23-25E). However, with Cukai Makmur already suppressing PTG’s FY22E net profit (we estimate c.11% net profit impact), we do not expect earnings to decline further in FY23E. Management has been on
the lookout for new projects (Pulau Indah pipeline, Southern debottlenecking) to help offset the decline.
Possible volatility from IGC charges
Rising gas prices could inflate PTG’s internal gas consumption (IGC) charges at the transport and regas segments. While IGC is theoretically a pass-through (the reference gas price is unknown given lack of regulatory disclosures), there are possible timing distortions which could potentially induce volatility in quarterly earnings.
Enjoying higher electricity tariffs
Pen. Malaysia’s 1H22 electricity tariff surcharge of 3.7sen/kWh is largely coal price-driven. PTG’s utilities segment (c.10% of group EBIT) bills electricity sales at benchmark tariffs but generates solely from gas, and thus should enjoy incremental profits. Our earnings forecasts and MYR17.20 TP (DCF-based assuming 7.2% WACC and 2% long-term growth) are unchanged.