Third Party Access system no threat to Petronas Gas, says Kenanga Research

PETALING JAYA: Kenanga Research is of the view that the Third Party Access (TPA) system, which took effect yesterday, will not be a drag on Petronas Gas Bhd’s (PetGas) earnings, given that the company is purely a transporter and processor and is not involved in gas supply.
In any case, the research house said, TPA will only affect PetGas’ parent company, Petroliam Nasional Bhd (Petronas) and Gas Malaysia Bhd.
On Monday, PetGas announced that the Energy Commission had confirmed the current tariff for the Peninsular Gas Utilisation System, Regasification Terminal Sungai Udang and Regasification Terminal Pengerang will be maintained until the end of this year.
At the same time, the company said it is in full compliance with the technical and operational provisions of the TPA system, which allows any party to have access to gas facilities available.
Kenanga Research said the news was not a surprise, given the management indication earlier that the new tariff structure is likely to be delayed as the authority needs more time to come out with a feasible framework to ensure the stability of the fee structure.
The share price of PetGas has suffered since early last year, going from above RM21 to a 52-week low of RM15.82 before recovering to the current level of RM19. Kenanga Research said this was because the market was anticipating a severe cut in tariff, which will dampen PetGas’ earnings.
Nevertheless, the research house said it maintained its view that the new tariff structure is expected to be earnings neutral to PetGas. It has an “outperform” call on the company with an unchanged sum-of-parts (SOP) target price of RM22 a share.
“In our opinion, being a Petronas company, the government may protect PetGas’ interest to ensure earnings certainty. Moreover, based on the experience of ICPT and GCPT mechanisms, Tenaga Nasional and Gas Malaysia suffered no negative impact with fuel and gas costs passed through to end-users eventually.
“As such, the new tariff post 2018 could turn out neutral for PetGas,” it added.
Meanwhile, AmInvestment Research said it downgraded its recommendation from “hold” to “sell” for PetGas, as the share price has risen above its slightly higher SOP fair value of RM16.65 a share (from an earlier RM16.60).
“Our revised SOP stems from the 3% increase in FY18F earnings, as we have removed the assumption for a 2ppts reduction from our estimated FY16 return on depreciated replacement cost or regulated asset base for the gas transportation segment of 17% under the Gas Supply (Amendment) Act 2016’s TPA implementation,” it noted.