Defensive earnings profile to support PetGas
PETALING JAYA: Analysts generally have a constructive view of Petronas Gas Bhd (PetGas) despite it having to absorb at least a RM170mil charge to rehabilitate the Putra Heights area following the pipeline fire incident in April.
CGS International (CGSI) Research stated PetGas' defensive earnings profile, underpinned by its ownership of gas infrastructure assets in Malaysia, remained a key strength that is backed by a healthy balance sheet.
'Visible free cash flow and dividend yields of over 4% support the sustainability of its payouts (dividends),' the research house stated in its latest report on PetGas.
It added the RM170mil estimated charge represented 1.2% of PetGas' current book value and 9% of 2025 forecast net profit.
CGSI Research has maintained a 'hold' call on PetGas with an unchanged discounted cash flow based target price (TP) of RM17.50 a share.
Kenanga Research noted that while PetGas' first quarter (1Q25) financial results were slightly below expectations, the company's regulated asset base continues to provide resilient earnings visibility.
The research house, however, expected PetGas' 2Q25 numbers to be on the weak side.
This is due to the operational disruptions following the Putra Heights fire incident.
'We fine-tune our financial year 2025 (FY25) and FY26 earnings forecast lower by 5% and 3%, respectively, to reflect the guided RM60mil profit impact in FY25, to incorporate adjustments to gas transportation and regasification terminal tariffs and some housekeeping,' Kenanga Research added.
It has a 'market perform' call on PetGas with a lower TP of RM16.80 a share.
PetGas posted a 1Q25 core profit of RM466.2mil on the back of RM1.6bil in revenue.
It announced a first interim dividend of 16 sen a share for the quarter.
MIDF Research, however, downgraded the counter to 'neutral' with a TP of RM18.67 a share on the ground that all factors that could impact the company's share price had been priced in.
It expected PetGas' FY25 performance to remain stable and resilient despite the operational setback caused by the pipeline incident.
'With higher demand for natural gas and liquefied natural gas, in tandem with the higher prices projected in 2025, all of PetGas' businesses will continue to perform on the positive.
'In line with the incident, we expect PetGas will strengthen its risk management, operational efficiency, and mitigation strategies,' MIDF Research said.
Its TP on PetGas is pegged to a price earnings multiple of 19 times to the revised earnings per share for FY25 of 98 sen.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Star
12 hours ago
- The Star
Current account surplus to stay modest
PETALING JAYA: Kenanga Research has revised its 2025 forecast for Malaysia's current account (CA) surplus down to 1.4% of gross domestic product (GDP), from 1.9% previously, after the country posted its weakest surplus on record in the second quarter of financial year 2025 (2Q25). 'The CA surplus fell sharply to RM300mil in 2Q25, or just 0.1% of GDP despite smaller services and primary income deficits,' the research house said in a note to clients yesterday. It pointed out that the surplus was 'nearly wiped out, as a sharp contraction in the goods surplus and a wider secondary income deficit more than offset a narrower primary income shortfall and a smaller services gap. 'The goods surplus, at RM17bil, was the lowest in 23 years, dragged down by weaker mining-related exports and a jump in capital imports. 'Exports fell 0.6% quarter-on-quarter while imports jumped 8.1%. 'The stronger ringgit likely weighed on export receipts, though electrical and electronics products demand remained firm,' the research house said. The secondary income deficit also widened significantly, almost quadrupling to RM4.6bil, as outward remittances climbed and inward remittances fell. On the other hand, the primary income deficit narrowed to its smallest in eight quarters at RM8.9bil, supported by higher earnings from Malaysian investments abroad and lower profit repatriation by foreign firms. On the services front, the deficit narrowed slightly to RM3.3bil, helped by higher travel receipts and manufacturing services surpluses. Meanwhile, the financial account deficit shrank markedly to RM2.2bil, the smallest in a year, compared to RM20.3bil in 1Q25. This improvement was underpinned by the largest portfolio investment surplus since 2Q21, as foreign demand for domestic bonds surged. Direct investment inflows, however, slowed sharply to RM2.2bil amid weaker foreign direct investment. Looking ahead, Kenanga Research warned that 'tariff risks remain elevated in the second half of the year, which may slow export growth and narrow the goods surplus'. On the other hand, it noted that stronger tourism receipts ahead of Visit Malaysia 2026 are expected to cushion the weakness. The research house added that US President Donald Trump's tariffs and a stronger ringgit could increase the risk of a CA deficit but is nonetheless expecting exports to hold up, supported by the government's focus on higher-value-added products. 'The global technology upcycle and strong artificial intelligence-related demand should also boost Malaysia's export-orientated sectors,' it said.
The Star
4 days ago
- The Star
LGMS set to benefit from cybersecurity expansion
PETALING JAYA: LGMS Bhd 's near-term performance will likely depend on greater product awareness and the pace of regulatory enforcement, even though the sector's long-term outlook remains favourable. Given the early stage of market development and the gradual roll-out of compliance requirements, Kenanga Research maintained a measured view on LGMS' short-term growth trajectory. It revised downward its financial year 2025 (FY25)/FY26 net profit forecasts by 21% and 14%, respectively, alongside a 14% and 13% cut in revenue, to account for the weaker first half of FY25 performance and more conservative growth assumptions in FY26. The research house has not factored in the potential share of associate profit from the proposed 27% stake in Antarex Holdings Sdn Bhd, which carries a RM24.5mil cumulative profit guarantee over three years. This is so since the acquisition is subject to conditions precedent under the share sales agreement, with deal completion targeted by the fourth quarter of FY25. Kenanga Research estimates that the inclusion of the profit guarantee would result in a 9% and 12% uplift to FY25 and FY26 net profit respectively, which would, in turn, raise its FY26 target price by 10 sen. The research house lowered its target price to 86 sen a share from RM1 previously, based on an unchanged FY26 price to earnings ratio of 30 times, in line with the peers' forward mean.
The Star
6 days ago
- The Star
19% tariff rate a positive for PIE
Kenanga Research said the group is eyeing an upcoming order cycle potentially in 4Q25. PETALING JAYA: PIE Industrial Bhd , which has posted weak second-quarter (2Q25) results due to the impact of the trade diversion and US tariffs, hopes to be able to recover its lost businesses eventually. However, the outlook is challenging at the moment as the company was affected in 2Q25 due to a customer (Customer A) having preemptively diversified production to Indonesia in anticipation of potential tariff adjustments, notably since Indonesia secured a lower tariff rate of 19% ahead of Malaysia. Kenanga Research said without this impact, PIE's net profit for the first half of 2025 (1H25) would have been at approximately 38% of its full-year forecast compared to 31% currently. That said, recovery could be imminent, given that Malaysia has now also secured a 19% tariff rate. According to Kenanga Research, the group is eyeing an upcoming order cycle potentially in 4Q25 and aims to capture around one-third of the expected allocation. 'We believe the company can regain lost market share in upcoming orders, given no discernible tariff difference among countries. Additionally, while Customer A plans to establish a US manufacturing facility, management sees the higher cost as commercially unviable and expects continued reliance on Asian vendors for assembly,' it said. Meanwhile Maybank Investment Bank Research (Maybank IB) said PIE is now negotiating to reclaim the lost volumes from this particular customer, with the earliest recovery expected only by 4Q25. The group shared in an analyst briefing that prior to the tariff regime, Malaysia, Indonesia and Thailand each accounted for roughly one-third of Customer A's volume. However, Kenanga Research also notes that for now, the volumes that have already been reallocated are difficult to immediately recover from the same customer on entrenched material and resource commitments. 'PIE is still in ongoing discussions with several prospective customers exploring trade diversion opportunities from China and Vietnam. Progress was previously hampered by Malaysia's higher 25% tariff versus most competing regions. 'With the tariff now reduced to 19%, in line with neighbouring countries, talks have resumed, though the onboarding timeline remains uncertain according to management,' Maybank IB said. The research outfit retained its 'hold' rating and target price of RM3.56 for PIE, which is based on a 17 times the financial year 2026 (FY26) forecast price-to-earnings ratio (PER). Kenanga Research held its 'market perform' rating and lowered its target price to RM3.85 from RM4.60 previously, based on a rolled-forward FY26 forecast valuation base and an unchanged PER of 21.6 times.
