KUALA LUMPUR: Petronas Gas Bhd's migration of regulated asset base (RAB) in Regulatory Period 1 (RP1) will have up to nine per cent negative impact on its transportation profit over the next three years, according to Affin Hwang Investment Bank Bhd.
Its analyst Tan Jianyuan assumed that Petronas Gas' profit contribution from its gas processing to fall by four per cent, with a minor one per cent growth for the regasification segment.
"Petronas Gas has moved into the new RP1 from January 2020 until December 2022 period with an effective lower allowable return. RAB on the return will gradually be moved from a depreciation replacement cost (DRC) approach to net book value (NBV).
"The asset base calculation will remain at 100 per cent DRC in 2020, and will effectively take five years to fully convert to NBV (20 per cent reduction in DRC to NBV every year)," Tan said in a research note today.
He said the Energy Commission had not shared details on the weighted average cost of capital (WACC) or the RAB size.
But the firm estimated that the DRC could affect at least two to three times the size of Petronas Gas' NBV due to aged assets.
Petronas Gas operates 2,623km of pipeline in Peninsular Malaysia with a total capacity of 3,500mmscfd (80 per cent higher than the processing capacity).
Under the tariffs for RP1 (2020-2022), the Peninsular Gas Utilisation (PGU) base tariff is 5.3 per cent higher at RM1.129 per gigajoule (GJ) compared to the 2019 pilot period at RM1.072 per GJ.
Tan said the incremental tariff had included the cost of internal gas consumption as part of the operating cost and the jetty charges.
"PGU is open for all under third-party access framework. The current gas transportation agreement signed with Petronas will expire in December 2033.
"However, with the implementation of Third Party Access, all liquefied natural gas (LNG) importers and shippers are required to sign a separate transportation agreement with Petronas Gas to use its network," he said.
Tan projected that Petronas Gas' profit to fall by 17 per cent by the end of 2022, while its transportation segment profit to fall by 7.0 per cent year-on-year in 2020.
He said Petronas Gas had plans to venture into new businesses to provide more ancillary services.
These included two new services for the gassing up and cooling down for LNG carriers and reloading services, both at the infrastructure are regasification terminals (RGT) Pengerang in 2019.
"In 2020, the service will be extended to LNG bunkering services at RGT Sungai Udang and LNG truck-loading services at RGT Pengerang," he said, adding that Petronas Gas has invested in a nitrogen plant in Kertih which is expected to commence operations in 2021.
Affin Hwang maintained its "hold" call with an unchanged target price of RM17 per share, implying 19 times financial year 2021 price-earnings-ratio.
"With Petronas Gas strong free cash flow generation at RM1.5 billion per year, we believe the company has no issue sustaining its historical payout of 80 per cent of total earnings per share, translating to a decent dividend yield of 4.5 per cent," he said.