Petgas: Earnings increased

Results Update

For QE30/6/2015, Petgas's net profit increased by 81% q-o-q or 88% y-o-y to RM818 million on the back of lower revenue of RM1.084 billion (a 2%-decline q-o-q & y-o-y) . However, net profit dropped 21% q-o-q on the back of a 1%-decline in revenue.

Revenue dropped q-o-q by RM17.7 million due to lower utilities revenue as a result of lower off-take from customers. PBT declined q-o-q by RM111.9 million primarily due to lower gross profit coupled with lower share of profits. Net profit jumped q-o-q due to lower tax expense resulting from recognition of Deferred Tax Assets ("DTA") arising from Investment Tax Allowance ("ITA") granted for the LNG regasification terminal amounting to RM407.4 million.


Table: Petgas's last 8 quarterly results

From the diagram below, we can see that the Gas Processing & Gas Transportation divisions enjoyed higher top-line and bottom-line for 1H2015 while the Utilities & Regasification divisions suffered decline in both top-line and bottom-line.


Diagram: Petgas's Segmental Results for 1H2015 & 1H2014

Looking at Chart 1, we can see that Petgas's top-line & bottom-line have been rising steadily over the past 8-9 years. At the same time, its profit margin has also been on a gradual uptrend.


Chart 1: Petgas's last 36 quarterly results

Valuation

Petgas (closed at RM22.46 yesterday) is now trading at a PE of 20x (based on last 4 quarters' EPS of 114 sen). However, if we exclude the exceptional DTA recognition of RM407.4 million, the last 4 quarters' EPS would be lowered to 93 sen. This would push the PER to 24 times. At this PER of 24 times, Petgas is deemed fully valued.

Technical Outlook

Petgas is in a long-term "uptrend line" with support at RM21.00. This coincides with the support at the horizontal line of RM21.00. Upside is capped at the May-June 2014 high of RM24.20-24.30.


Chart 2: Petgas's monthly chart as at Aug 4, 2015 (Source: ShareInvestor.com) 

Conclusion

Despite the satisfactory financial performance & mildly positive technical outlook, I maintain my rating for Petgas as a HOLD due to high valuation.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Petgas.