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Petronas Gas Bhd (Sept 13, RMI3.30) Maintain buy at
RM13.50 with target price of RM 14.40: Gas Malaysia (GM) has
published its draft prospectus on the Securities Commission website
for 15 working days. It is expected that GM will be listed on Bursa
this December.
The biggest shareholders, MMC Corp Bhd and
Shapadu Group, own 55% of GM while Tokyo Gas-Mitsui Co Sdn Bhd owns
25% and Petronas Gas (PetGas) holds the remaining 20%. Note that 26%
of GM’s shares are offered for sale and there is no issuance of new
shares.
We estimate that post-listing, PetGas’ equity
interest in GM will be reduced to about 14.8%.
MMC managing
director Datuk Hasni Harun indicated that GM could have a market
capitalisation of about RM5 billion, equivalent to about 16 times
price-earnings ratio (PER) based on our estimate (at RM5 billion,
the IPO price would be RM3.90). Therefore, PetGas’ 20% stake in GM
is valued at about RM 1 billion, which is close to 10 times higher
than its initial investment cost of only RM1O3 million. We reckon
PetGas’ equity value will then be lifted by about 10% to RM4.92 per
share (2QCY11: RM4.47).
As a result of the 26% offer for
sale, PetGas is expected to recognise about RM230 million disposal
gains in its income statement, boosting CY11 bottom line by 14.6%.
(Our estimate is subject to the IPO price.) GM’s contribution to
PetGas’ total net profit has averaged 5% or RM54 million for the
past three years. Given that PetGas’ ownership in GM will dilute to
below 20% post-listing (14.8%), contribution from GM starting CY12
onwards will then be recognised as investment income instead of
associate contribution. It was reported that GM is committed to pay
a guaranteed dividend of 100% and 75% payout in the first two years
after listing. We estimated that PetGas’ CY12 net profit will be
only marginally affected by about -1%.
We maintain our "buy"
recommendation for PetGas with unchanged target price of RM14.40,
derived from 16.5 times PER plus net cash of RM1.27 per share. We
continue to like PetGas as we expect the company to outperform the
market during the uncertain period moving forward. This is supported
by PetGas’ strong fundamentals, the defensive nature of its business
with good earnings quality, net cash position and consistent
dividend payout.
Furthermore, we believe PetGas is a proxy
play to the rising gas demand and LNG imports. All considered, the
listing of GM is positive to PetGas. MIDF Research.
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