BERHAD: New Tariffs Expected to Bolster Regulated Earnings, ‘Buy’ Rating Reaffirmed

The latest regulatory review has set the stage for potentially stronger performance in gas infrastructure operations, with revised tariffs expected to underpin earnings growth for the upcoming period. Analysts have maintained a “Buy” recommendation, citing the positive tariff adjustments and the company’s strategic market position.

Performance Review

Revised tariffs for gas transportation and regasification services under Regulatory Period 3 (RP3), spanning from January 1, 2026, to December 31, 2028, have been approved. These RP3 base tariffs demonstrate a broad increase compared to Regulatory Period 2 (2023-2025). Specifically, the Peninsular Gas Utilisation pipeline (PGU) will see a significant 12.5% increase, while RGT Sg. Udang (RGTSU) tariffs will rise by 2.5%. These gains are marginally offset by slight declines in C-Tariff (-0.4%) and RGT Pengerang (-0.7%).

Looking ahead to fiscal year 2026, allowed tariffs are also projected to be substantially higher than in FY25. PGU is set for a 14.8% increase, and RGTSU for a 2.4% increase, albeit with minor declines for C-Tariff (-1.1%) and RGTP (-1.5%).

Key Details and Analyst View

While the announced tariff hikes present a positive outlook, the full details of key components, particularly the allowed rate of return and projected regulated asset base (RAB), are still pending. These elements are crucial for a comprehensive assessment of regulated earnings. Despite the initial positive signal from higher tariffs, market observers await further clarification to ascertain the core drivers behind the increases.

Analysts anticipate that the regulated asset base (RAB) will continue to expand throughout RP3, driven by sustained regulated capital expenditure. This includes potential higher capex for the PGU to ensure asset integrity following a pipeline incident in April 2025. This expansion of RAB is expected to be a key factor in underpinning regulated earnings growth during RP3, building on the 52% contribution of regulated businesses to the group’s gross profit in FY23 and FY24.

Future Outlook and Recommendation

The company is strategically positioned as a critical upstream proxy for the energy transition, moving from coal to gas, and is poised to benefit from the growing demand for power driven by data centres. As the nation’s largest gas supply infrastructure owner and operator, its business model is robust, supported by stable long-term contracts and regulated operations.

Given these factors, TA SECURITIES has maintained its “Buy” rating, with an unchanged SOP-derived target price of RM20.58. This target price implies a forward Price-to-Earnings Ratio (PER) of 19x for FY26F, aligning closely with the company’s 10-year historical average of 20x. Additionally, the company offers a decent dividend yield, projected between 4.4% and 5.2% over the forecast horizon.