PETGAS: Financial Performance Meets Forecasts Despite Tariff Headwinds, Buy Rating Affirmed

A major utility group’s nine-month financial performance for FY25 came in largely within expectations, despite facing headwinds from new tariff structures. The group reported a core net profit of RM1.35 billion for the nine-month period, a marginal decline of 1.9% year-on-year. This figure represented 73% of both the investment bank’s and street estimates, underscoring stable operational delivery. For the third quarter of FY25, core net profit stood at RM441 million, a slight decrease of 0.3% year-on-year.

Performance Review

The group’s third-quarter gross profit saw a 9% year-on-year decline, primarily attributed to lower margins within its Utilities and Gas Transportation segments. The Utilities division was impacted by weaker margins stemming from reduced product prices for steam and industrial gases, aligning with lower fuel gas prices under the Marginal Revenue Pricing (MRP) mechanism, which saw a 7% year-on-year reduction. Furthermore, the segment’s average electricity prices were affected by the new RP4 tariff structure implemented from July 2025. Similarly, the Gas Transportation segment experienced lower revenue due to downward tariff adjustments and higher operating expenses. The company also declared an interim dividend of 18 sen per share, bringing the cumulative nine-month dividends to 50 sen per share, with a 73% dividend payout ratio.

Future Outlook and Growth Initiatives

Looking ahead, the group is progressing with restoration works following an incident involving its pipeline assets. Phase 1, which involved a temporary bypass pipeline, was completed in July 2025, with associated costs of RM26 million expensed out. Phase 2, focusing on a permanent pipeline, is targeted for completion by the third quarter of FY26, with the bulk of its costs expected to be capitalised. The company continues to negotiate with regulators regarding the capitalisation of these regulated capital expenditures, which are part of an estimated total financial impact of RM170 million from the repair works.

Strategically, the group is actively pursuing growth opportunities aligned with the energy transition. This includes addressing the rising demand for gas as industries shift from coal, exploring the development of a third regasification terminal (RGT-3) under the 13th Malaysia Plan, and competing for tenders for new Combined Cycle Gas Turbine (CCGT) power plants scheduled for commissioning between 2025 and 2029. Additionally, the group is involved in joint ventures to develop CCGT power plants in Kimanis (100MW, targeted March 2026) and Labuan (120MW, targeted January 2028), and is also exploring opportunities in Carbon Capture and Storage (CCS) services.

Analyst’s View

Investment bank TA Securities has maintained its BUY recommendation on the stock, with an unchanged target price of RM20.58. This target price implies a forward PER of 19x for FY26F, which is consistent with the company’s 10-year historical mean of 20x. The analyst views the group as well-positioned to benefit from the energy transition, higher gas demand, and data centre-driven power needs, supported by long-term contracts and regulated businesses providing a decent dividend yield of 4.4%-5.2%.