KUALA LUMPUR: Despite its lower second quarter (Q2) earnings for financial year 2021 (FY21), Petronas Gas Bhd (PetGas) could remain an appealing bet for investors amid the prolonged economic recovery.
The company continues to offer decent dividend yields and a large part of its income comes from secured, long-term sources. About 90% of the group’s earnings are derived from fixed regulated tariffs from gas transportation assets and long-term agreements with Petronas for its regassification and processing businesses.
Additionally, PetGas is in the value chain that provides access to relatively cleaner gas, said TA Securities.
“This aligns with the current energy transition trend to cleaner energy alternatives vis-à-vis crude oil derivatives. As such, this enhances its environmental, social and governance (ESG) rating to attract investors,” the research house said in a report yesterday.
TA Securities has maintained its “buy” call on the stock with an unchanged target price of RM18.70.
PetGas’ Q2 of FY21 net earnings slipped 19% year-on-year (y-o-y) to RM463.9mil. Cumulatively, it turned in a core profit of RM990mil for the first half of FY21.
Quarter-on-quarter, the profit decline of 22% was mainly attributed to increased operating expenditure on the back of higher internal gas consumption, fuel gas and maintenance costs, as well as lower contribution from joint ventures as a result of one-off higher tax provisions at Kimanis Power.
TA Securities noted that its results came in within expectations, accounting for 52% and 49% of its and consensus full-year forecasts, respectively.
Meanwhile, AmInvestment Bank Research added that the stock currently traded at an attractive FY21 price earnings ratio (PER) of 16 times, below its three-year average of 18 times, and offered compelling dividend yields of 8%.
“This is unjustified as FY23 earnings decline of 7% from the continuation of the Energy Commission’s incentive-based regulatory framework could still offer decent yields.”
AmInvestment has also kept its “buy” rating on PetGas with an unchanged fair value of RM20.35.
On the other hand, analysts were a little less positive about the prospects of its sister company Petronas Dagangan Bhd (PetDag), which may be in for a challenging Q3 due to the prolonged lockdown measures.
Kenanga Research believes the upcoming Q3 may potentially post weaker numbers, as the imposition of the nationwide lockdown in June would have affected sales volumes.
Nonetheless, the brokerage is hopeful of an earnings recovery in FY22, given the gradual increase in vaccination rates.
Kenanga Research has maintained its “market perform” rating on PetDag, albeit with lower FY21 and FY22 earnings estimates by 11% and 5%, respectively, on the back of lower margins spread and sales volume assumptions. As a result, it has also lowered its target price on the stock to RM18.90 from RM19.80 previously – pegged to unchanged valuations of 26 times PER.
Moving forward, PetDag is looking into diversifying its portfolio to bring value to customers.
The group’s retail segment will continue to accelerate its non-fuel business by expanding its food-on-the-go solutions in Kedai Mesra nationwide by end of the year, as well as to leverage on its digital platforms.
“Its liquefied petroleum gas segment, on the other hand, will continue to strengthen its distribution channels through their new Gas Petronas e-commerce app, whilst lubricants will be focused on deliverables as well as its network of Petronas AutoExpert workshops.
“PetDag’s commercial segment will continue to provide to its existing customers, while working on capturing new markets, particularly in the adoption of liquified natural gas as a part of running a sustainable business,” said MIDF Research.
Once the current movement restrictions are lifted, MIDF said PetDag will benefit from domestic air travel and cargo flights.