Higher tax and lower margins dent earnings
? 1QFY22 core net profit came in within our and the market’s expectations,
declining 25% yoy on higher effective tax rate and weaker gross margin.
? Performance was weaker across all divisions due to higher operating costs
and higher fuel gas cost, which dragged down margins.
? A first interim DPS of 16 sen was declared, as expected. Retain Hold given
the expected weaker earnings outlook with dividend yields of >4% as buffer.
Key results highlights
PGB’s 1Q22 core net profit was in line at 22% of our and Bloomberg consensus’s full-year estimates. 1Q22 core earnings (excluding forex movements) declined 25% yoy
despite stronger revenue (+9% yoy), mainly dragged down by: (i) a higher effective tax
rate arising from the one-off Cukai Makmur, and (ii) weaker gross margin (-11.2% pts
yoy) on higher fuel gas costs which were not passed through on electricity sales and
higher operating costs. Core net profit contracted 8% qoq in 1Q22, due to lower share of
profit from joint venture companies and higher tax.
1Q22 gross profit dented by higher operating costs
1Q22 revenue rose 9% yoy supported by: i) utilities (+42% yoy), on higher product prices
and higher electricity sales volume, and ii) gas processing (+1% yoy), following higher
internal gas consumption incentive achieved, which more than offset the 1% yoy sales
decline at regasification due to lower liquefied natural gas (LNG) reloading at the
Regasification Terminal Sg Udang (RTSU). 1Q22 gross profit fell 14% yoy, dragged
down by weaker performance across the board: i) gas processing (-4% yoy) and gas
transportation (-7% yoy), due to higher operating costs, ii) regasification (-11% yoy), due
to higher operating costs and higher maintenance costs, in line with level of planned
activities, and (iii) utilities (-71% yoy), due to lower margins as a result of higher fuel gas
costs.
First interim DPS of 16 sen for 1Q22, as expected
A first interim DPS of 16 sen (vs. 16 sen in 1Q21) was declared in 1Q22, as expected.
PGB adopts a dividend policy of paying out at least 50% of its net profit. We expect PGB
to sustain its ordinary FY22F DPS at similar levels to FY21 (ordinary DPS of 72 sen),
representing a dividend yield of over 4%. We gather the capex guidance for FY22F is
c.RM1.3bn-1.4bn, depending on project opportunities.
Reiterate Hold
Our TP is unchanged at RM16.75 based on 17.1x FY23F (its 2-year historical mean P/E).
We are using a 2-year historical mean P/E as it reflects PGB’s trading range during the
implementation of the incentive-based regulation (IBR) period. Retain Hold given the
expected weaker FY22-24F earnings vs. FY21F due to Cukai Makmur and anticipated
earnings step-down in FY23F arising from IBR RP2 (2023-2025). Dividend yields of more
than 4% for FY22-24F will likely provide support to its share price.