Petronas-related stocks up, research firms upgrade recommendations


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Written by Syndicated News

KUALA LUMPUR, May 16 2017 : The shares of two Petronas-related stocks, Petronas Chemicals (PetChem) and Petronas Gas (PetGas), edged up this morning hours after both companies announced their quarterly financial results, amid improving oil prices.

As at 10.18 am, PetGas chalked up 22 sen to RM18.80 with 141,100 shares transacted while PetChem rose two sen to RM7.29 with 2.25 million shares changing hands.

PetChem’s pre-tax profit almost doubled to RM1.63 billion in the first quarter ended March 31, 2017 from RM896 million recorded in the same period last year while revenue surged to RM4.69 billion from RM3.14 billion, previously.

The better results were due to the significant increase in overall average product prices by an average of 22 per cent, higher sales volume, higher prices and a stronger US dollar, PetChem said in a filing to Bursa Malaysia yesterday.

PetGas’s pre-tax profit slipped RM1.7 million to RM577 million in the first quarter ended March 31, 2017 due to higher operating costs attributed to one-off staff costs adjustment and depreciation expense in line with completion of major capital projects.

Revenue, however, increased 3.4 per cent to RM1.17 billion compared with the corresponding quarter due to higher utilities revenue in tandem with higher off-take by customers, as well as, higher sales prices in line with fuel gas price revision coupled with higher re-gasification revenue attributed to higher storage fees.

Maybank IB Research said PetGas´ performance came within expectation and has kept its earnings forecast on the group unchanged at a target price of RM23.00.

The research firm has also upgraded its call on PetGas to ‘Buy´ as it believed the implementation of the third party agreement (TPA), which had caused the sell-down on the stock recently, would unlikely be punitive for PetGas.

Another research firm, Kenanga Research has revised upwards its recommendation on PetGas to ‘Outperform’ with a higher target price of RM22.00 after rolling over valuation base-year to calendar year 2018.

Kenanga Research opined that the TPA-concern was ‘overdone’.

“We believe this TPA may not be applicable to everyone unless the offtake has huge gas requirement like Tenaga to make the import economically workable as it needs certain size of order plus storage facility.

“Furthermore, current piped gas is still subsidised by Petronas. Based on Tenaga´s and Gas Malaysia’s asset returns of 7.5-8.0 per cent, a worst case of rate reduction for PetGas would be 15 per cent to bring down its current asset returns of over nine per cent and that could impact its financial year 2018 earnings by nine per cent, ” it said in a note today.

Another Petronas-related stock, Petronas Dagangan, also trending higher this morning, rose 34 sen to RM24.40 with 480,600 shares transacted. – Bernama



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