This is why this company's aiming for optimal gearing level

This company is still striving for optimal gearing, with management reiterating the group’s optimal gearing plan to achieve a debt-to-equity ratio equal to other utilities/infrastructural firms’ 55 percent over the next three years, from its present net gearing position of only 3 percent.

For that matter, AmInvestment Bank says it is maintaining its ‘Buy’ call on Petronas Gas or PGas with, “an unchanged sum-of-parts-based (SOP) fair value of RM20.20, which reflects a premium of 3% from our ESG rating of 4 stars. This also implies an FY21F PE of 20x.”

Notwithstanding that the 4 interim dividends declared so far have only reached 82 sen in FY21 (a 35% drop from 127 sen in FY20).

Management indicated no plans for further distribution for the last financial year at this stage pending the board’s deliberations on prospective investments.

Gearing forward

Even so, management’s balance sheet optimisation strategy implies an escalation in special dividends going forward which could potentially double our FY22F–FY24F DPS to an eye-watering 10% yield.

“Nevertheless, we caution that these estimates could be moderated by new investment plans, depending on the scale and financing structure.”

Maintenance activities are expected to be slightly higher this year. However, PGas’ capex is expected to rise by 26% to RM1.3bil in FY22F from RM1bil last year, and slightly higher to RM1.3–RM1.4bil in FY23F before tapering off in FY24F.

While unable to quantify the FY22F prosperity tax impact at this stage, management expects the regassification units, which enjoy pioneer tax status, to partly mitigate the likely higher tax rate.

Recall that companies will be taxed on profits in excess of RM100mil at 33% this year. For now, we maintain FY22F’s effective tax rate of 25% vs. 20% in FY21.

“Management is evaluating clients’ expressions of interest to take up capacity for a third liquefied natural gas (LNG) storage tank in Pengerang. Recall that PGas’ 65%-owned Pengerang LNG (Two) (PLNG2) has invited prospective contractors last year to submit non-binding expressions of interest to utilise a proposed new tank with a preferred capacity of 160K cubic metres on a 20-year commercial lease agreement.

“Dialog has a 25% equity stake in PLNG2 while the Johor state government holds 10%. The new storage tank, which can be upsized to 260K cubic metres, is expected to be completed by 4Q2025 at the earliest. Based on PLNG2’s preferred tank size and contract term of 20 years, the indicative annual fee would be US$24.1mil for third-party usage,” say the analysts.