KUALA LUMPUR (Nov 20): BIMB Securities Research has downgraded Petronas Gas Bhd (PetGas) to Hold at price RM16.70 with a discounted-cash-flow (DCF) derived target price of RM17.25, and said the stock's price has risen by over 8% since it last upgraded it.

In a note today, the research house said the operating profit at the gas transportation (GT) segment came in weaker on higher repair and maintenance costs (+18% quarter-on-quarter [q-o-q]).

“Statutory turnaround at the air separation unit (ASU) was in tandem with turnaround activities at some of Petronas Chemicals Group Bhd’s (PChem) plants in Kerteh,” it added.

The joint venture (JV)/ associate line saw structural growth from contribution of the ASU in Pengerang.

PetGas’ 9M19 core profit fell 6% drawing impact from the weaker GT and regasification (RGT) contribution under Incentive-based Regulation (IBR) and worsened the Utilities performance.

“Overall, it was in line with ours at 74% and consensus at 76%,” the research house said.

According to BIMB, an 18 sen third interim dividend-per-share (DPS) (3Q18: 18 sen) was declared, implying 83% payout, brining 9M19 DPS to 50 sen (9M18: 50 sen).

“We expect 4Q19 performance to rebound especially for Utilities as ASU operations resume,” said BIMB Securities.

The margin expansion at gas processing (GP) is structural as some assets are fully depreciated.

“It guided for 2019 capital expenditure (CAPEX) of c.RM1.1 billion- RM2 billion mainly for major rejuvenation capex at GP,” BIMB Securities added.

It noted that at current levels, dividend yields are decent at 4.4-4.5%.

At 9.30am, PetGas fell 1.32% or 22 sen to RM16.48, valuing it at RM32.61 billion.