OSK Research has Buy on Petronas Gas at RM9.89

KUALA LUMPUR:OSK Research has a Buy call on Petronas Gas at RM9.89 with a target price of RM13.81 as its longer term prospects seem even brighter.

The research house said on Wednesday, April 7 the new gas processing and transmission agreement (GPTA) terms serve to prepare Petronas Gas to leverage on excess capacity in its gas pipeline network to generate additional revenue.

“Management’s revelation that a new LNG regasification plant will be built in Peninsular Malaysia also helps to assuage concerns that the peninsula’s gas is running out while the new plant will ensure continued utilisation of Petronas Gas’s GPPs and pipelines,” it said.

OSK Research said it maintained its earnings forecasts and above consensus target price of RM13.81.

It said the company’s management met with the investment community on Tuesday to provide more details on the revised GPTA terms, explain the rationale for the revision and map out Petronas Gas’s future direction.

The details unveiled by management include the scope of the 4 zones specified in the transportation tariff and confirmation of the previous gas price paid.

Petronas Gas management also highlighted that the separation of the processing and transportation revenue paves the way for Petronas Gas’s to act as an independent gas transportation company to any party who wishes to import gas into Malaysia in the future.

“While our shorter term forecasts are unchanged, Petronas Gas’s revelation of plans to build a LNG regasification plant in Peninsular Malaysia to ensure the continuity of gas supply - even as the offshore gas fields deplete - means that the GPPs and the PGU will continue to be utilised and PTG’s business model is sustainable past the expiry of the GPTA in 2014,” it said.

This helps mitigate concerns of what Petronas Gas’s business model would look like past 2014. In fact, PTG’s business model of separating gas processing and transportation charges will enable it to capitalise on excess capacity in its pipelines for transporting gas even as it reaches maximum utilisation in the processing business.

“While some have raised questions over the reasons why Petronas would give Petronas Gas such favourable terms, as reflected in the 37% jump in our net profit forecast for FY11, we would like to point out that the main reason for Petronas Gas’s continued listing in Bursa Malaysia is to give Malaysians an opportunity to share the wealth of Petronas.

“As such, we do not see these terms, which basically prepare Petronas Gas for a possible deregulated gas market, as being to the disadvantage of Petronas. Maintain Buy,” it said.