STOCK FOCUS OF THE DAY
Petronas Gas: Deferred implementation of TPA tariff revision SELL
We downgrade our recommendation from HOLD to SELL for Petronas Gas (PGas) as the share price has risen above our slightly higher sum-of-parts-based (SOP) fair value of RM16.65/share (from an earlier RM16.60/share), which implies an FY18F PE of 18x, a 20% discount to the 2-year average of 23x.
Our revised SOP stems from the 3% increase in FY18F earnings, as we have removed the assumption for a 2ppts reduction from our estimated FY16 return on depreciated replacement cost or regulated asset base (RAB) for the gas transportation segment of 17% under the Gas Supply (Amendment) Act 2016’s Third Party Access (TPA) implementation, which commences today.
In our view, the stock price has recovered given that the impact for the TPA has been deferred. However, the impending value erosion from the implementation of the government’s incentive-based regulatory mechanism will only defer the impact by a year. Hence, the stock currently trades at an unjustified FY18F PE of 20x with its earnings likely to erode over the longer term under the new TPA terms.
Others :
KL Kepong: More acquisitions in the future? HOLD
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ECONOMIC HIGHLIGHT
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