PETGAS: Utilities Firm Exceeds Expectations on Cost Control, Target Price Raised

Petronas Gas Berhad’s (PETGAS) IHFY25 core net profit of RM912.6 million, despite a 2.7% year-on-year decline, aligned with both TA Securities’ and consensus estimates, accounting for 49% of their respective full-year forecasts. The group also announced a second interim dividend of 16 sen per share, bringing the total IHFY25 dividend to 32 sen, representing a dividend payout ratio (DPR) of 69%.

Performance Review

The group’s 2QFY25 gross profit registered a 4.6% year-on-year decline, settling at RM569 million. This decrease was primarily driven by a substantial 23% year-on-year drop in the Gas Transportation segment’s gross profit. This segment recognized costs associated with gas supply restoration efforts following the Putra Heights fire incident in April 2025, with over a third of the estimated RM60 million impact on FY25F earnings being absorbed in 2QFY25. However, this downturn was partially mitigated by an improved performance in the Utilities segment, which saw a robust 14% year-on-year increase in gross profit, largely due to lower fuel gas costs that boosted margins. Concurrently, the Gas Processing segment experienced a slight year-on-year uptick in gross profit, attributed to lower operating costs, while the Regasification segment faced a minor impact from higher maintenance costs during the quarter.

Future Outlook and Strategic Initiatives

Looking ahead, PETGAS is actively engaged in a two-phase restoration of pipeline assets affected by the Putra Heights incident. Phase I, involving a temporary bypass pipeline, was successfully completed in July 2025. The estimated RM26 million cost for this phase is expensed given the bypass pipeline’s short operational life. Phase II entails the construction of a permanent pipeline, targeted for completion by 3QFY26, with the bulk of these costs expected to be capitalized. PETGAS is in ongoing discussions with regulatory bodies regarding the potential for capitalizing these costs as regulated capital expenditure. The total financial impact of the repair works and asset restoration is guided at RM170 million, with a “substantial portion” earmarked for capitalization.

The group is also strategically pursuing growth opportunities, capitalizing on the increasing gas demand driven by the energy transition’s shift from coal to natural gas. Key initiatives include plans to capture opportunities related to the development of a third regasification terminal (RGT-3) as outlined under the 13th Malaysia Plan (13MP), particularly as its two existing RGTs at Sungai Udang and Pengerang are fully booked by shippers. Furthermore, PETGAS is a strong contender in the Energy Commission’s latest tender for new CCGT power plants, scheduled for commissioning between 2025 and 2029. The company is also collaborating on the development of new CCGT power plants in Kimanis, Sabah (a 100MW project with RM700 million capex, targeting COD March 2026) and Labuan (a 120MW project with RM1 billion capex, targeting COD January 2028). Additionally, PETGAS is exploring opportunities in Carbon Capture and Storage (CCS) services, particularly leveraging its existing gas processing infrastructure and potential onshore CO2 transportation, though these initiatives are currently in early stages of development.

Investment Recommendation

TA Securities maintains its “BUY” recommendation for PETGAS, with a revised target price of RM20.58. This represents an 8.3% upside from the last traded price of RM19.00 and reflects a rollover of their valuation base to FY26F (previously RM20.21). The firm positions PETGAS as a key upstream proxy to the energy transition from coal to gas and a beneficiary of data centre-driven demand for power, given its status as the largest gas infrastructure owner and operator in Malaysia. The company is also expected to offer a decent dividend yield of 4.2%-5.0% across the forecast horizon, underpinned by its long-term contracts and regulated business model.