Petronas Gas Berhad (Petronas Gas) has reported a weaker performance for 2Q24, with normalised net profit declining by 7% year-on-year despite a slight increase in revenues. The company's results were largely in line with expectations, with the first half of 2024 accounting for 53% of the full-year forecast.

Analysts have reiterated a HOLD rating on Petronas Gas, maintaining a discounted cash flow (DCF)-based target price of RM17.50. The decision reflects the softer earnings across all operating segments, which experienced increased maintenance costs during the quarter. The decline in normalised net profit was driven by a 5% drop in earnings across most business segments, with the Utilities segment suffering a steeper 26% decrease due to lower product prices and a 5% fall in revenues.

On a quarter-on-quarter basis, the 2Q24 performance was relatively flat. Gains in the Gas Processing and Regasification segments were offset by reduced profits from the Gas Transportation and Utilities divisions. The company declared a second interim dividend of 16 sen per share, bringing the total dividends for the first half of the year to 32 sen, consistent with the previous year's figures.

In recent updates from the analyst briefing, Petronas Gas clarified that it does not operate in Sarawak and is unaffected by the ongoing negotiations between Petros and Petronas. The company is engaged in discussions with regulators about two new gas power plants in Sabah and Labuan, with planned commercial operations set for 2026 and 2028, respectively. These projects, with a combined capacity slightly above 200MW, are expected to cost approximately RM2 billion.

Additionally, PTG is closely monitoring oil price movements, as the Malaysian Reference Price (MRP) for gas is linked to Brent crude with a time lag. The MRP has recently decreased by 4% to RM42.4 per mmbtu for 3Q24 delivery, following consecutive increases in the previous quarters.

Despite the subdued earnings growth, Petronas Gas is seen as offering attractive yields of 4-4.5%, supported by its strong free cash flows and robust net cash balance sheet.

Source: CGS
Title: A softer quarter