1. PETGAS
Fundamental Analysis
Financial Year 2014 (31 Dec 2014)
At the time of writing, I owned shares of PETGAS.
4 November 2015
L. C. Chong
http://lcchong.wordpress.com
https://www.facebook.com/groups/285121298359919/
2. Changes
2 Nov 2015 – First write up of PETGAS in PowerPoint format
3. Other References
32nd PGB Annual General Meeting - Presentation Pack
Corporate Briefing Pack 2015
Petronas Gas Plant Visit 2015
5. Business Profile (Cont.)
Gas processing
• Processing of natural gas from gas fields into sales gas and other by-products such as ethane,
propane and butane
Gas transportation
• Transportation of the processed gas to PETRONAS end users throughout Malaysia and export to
Singapore
Utilities
• Manufacturing, marketing and supplying of industrial utilities to the petrochemical complexes
and industrial complexes
Regasification
• Regasification of liquefied natural gas for the Company and third parties to be used throughout
Malaysia
8. Top 5 Shareholders
PETROLIAM NASIONAL BERHAD
71%
EMPLOYEES PROVIDENT FUND
OF MALAYSIA
13%
PERMODALAN NASIONAL
BERHAD
8%
KUMPULAN WANG PERSARAAN
6%
PUBLIC MUTUAL BERHAD
2%
9. Economic Moats
Cost Advantage
Over 30% Net Profit Margin shows that PETGAS enjoy very huge cost
advantage. If not because of regasification terminals, PETGAS should be able
to maintain extreme high value for FCF/Sales.
Switching Costs
As PETGAS monopolizes gas processing and transmission in Malaysia, the
downstream has very few options
Operating more than 2,500 km of gas transmission pipeline, with a gas
processing capacity of more than 2,000 mmscfd
10. Economic Moats (Cont.)
Network Effect
Like it or not, we can’t escape from using gas supplied by Petronas Gas in
Malaysia
Intangible Assets
Very strong GLC status. 100% protected by government
Efficient Scale
Operating more than 2,500 km of gas transmission pipeline, with a gas
processing capacity of more than 2,000 mmscfd
Established Malaysia's first ever LNG Regasification Terminal which started
operations in the second quarter of 2013.
16. Profitability (Cont.)
Cost of raw material has been increasing in the past few years
However, PETGAS still able to maintain >50% gross profit.
17. Leverage & Coverage
91.25 x
117.10 x
122.60 x
65.73 x
40.16 x
0.00 x
20.00 x
40.00 x
60.00 x
80.00 x
100.00 x
120.00 x
140.00 x
2010-03-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
(FFO+Int. Exp.)/ Int. Exp.
21. Growth Drivers
5 Nov 2014 - The management of PetGas guided that they are
allocating approximately RM6b on capex for the next five years, i.e.
RM1.2b per annum. Out of the RM6b, 60% will be spent on growth
projects such as the regasification terminal in Pengerang
25 Nov 2014 - The construction of the Pengerang RGT is expected to
commence in 2QCY15 and targeted for completion in 4QCY17
Management also estimate that the RGT will contribute about 6% - 7% on a
100% stake, which implies approximately 4% - 5% earnings accretion p.a. for
PGB’s 65% stake in the project
22. Growth Drivers (Cont.)
Undergoing of Plant Rejuvenation and Revamp project (PRR2)
The completion of the PRR is expected to sustain PETGAS’s plant reliability
and integrity for an additional 20 years while generating major savings in
capital investment
9 Oct 2015 – To spend $28 billion to develop shale gas assets in
Canada
To deliver long term LNG supply to its customers through the Pacific
NorthWest LNG project in Canada
24. Issues/Risks/Challenges
Challenges in the upstream continue to limit the volume of feed gas
supply processed and transmitted through PETGAS's system (Plant
Operations Division in Kertih and Paka in Terengganu), impacting the
scale of revenue earned from the GPTA arrangement
Lower petrochemicals demand may reduce the earnings potential
from the utilities division, which will lower overall earnings
Volatility in the petrochemical business may have a negative impact
on group earnings.
25. Shareholder Return
Time Frame Date Bought at Original
Value
Dividend
Received
Unrealized
Gain/Loss
Current
Return
CAGR %
3-Y 2 Nov 2012 19.48 19,480 1,730 3,500 24,710 8.3%
5-Y 2 Nov 2010 11.24 11,240 2,780 11,740 25,760 18%
10-Y 2 Nov 2005 8.8 8,800 5,130 14,180 28,110 12.3%
Assumptions:
1. Commission paid is ignored in this simulation
2. The current price is 22.90 (as of the time of writing)
3. Unit purchased is 1,000.
26. Going Forward
The stock price movement of PetGas has been fairly resilient, trading
sideways within the band of RM21-23 per share since mid-August
2014 despite the >-50% drop in global crude oil prices
Upside room of this stock is slightly limited due to a lack of fresh
catalysts (the Pengerang regasification terminal will only come
onstream at the end of the decade)
Valuations may not very compelling, but not bad. PETGAS still appeals
to funds seeking earnings stability
I will continue to hold PETGAS, and may accumulate PETGAS in the
future.
Notas del editor
The cash flow interest coverage ratio is an indicator for a utility’s ability to cover the cost of its borrowed capital.
This important metric is an indicator for the cash generating ability of a utility compared to its total debt.
This ratio is an indicator for financial leverage as well as an indicator of the strength of a utility’s cash flow after dividend payments are made. Dividend obligations of utilities are often substantial, quasi-permanent outflows that can affect the ability of a utility to cover its debt obligations, and this ratio can also provide insight into the financial policies of a utility or utility holding company. The higher the level of retained cash flow relative to a utility’s debt, the more cash the utility has to support its capital expenditure program.
This ratio is a traditional measure of balance sheet leverage. The numerator is total debt and the denominator is total capitalization. All of our ratios are calculated in accordance with Moody’s standard adjustments7, but we note that our definition of total capitalization includes deferred taxes in addition to total debt, preferred stock, other hybrid securities, and common equity. Since the presence or absence of deferred taxes is a function of national tax policy, comparing utilities using this ratio may be more meaningful among utilities in the same country or in countries with similar tax policies. High debt levels in comparison to capitalization can indicate higher interest obligations, can limit the ability of a utility to raise additional financing if needed, and can lead to leverage covenant violations in bank credit facilities or other financing agreements8. A high ratio may result from a regulatory framework that does not permit a robust cushion of equity in the capital structure, or from a material write-off of an asset, which may not have impacted current period cash flows but could affect future period cash flows relative to debt.
