PETRONAS Gas Berhad (PETGAS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to PETRONAS Gas Berhad Analyst Briefing for Quarter Ended 30th of June 2022. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Izan Hajar Ishak. Thank you. Please go ahead.

Thank you, Desmond. [Foreign Language] and good evening, everyone. Thank you for joining our session today for PETRONAS Gas Berhad's analyst briefing for quarter ended 30th June 2022. I'm Izan from Investor Relations. With us from PGB, we have Encik Abdul Aziz Othman, Managing Director and CEO; Encik Shahrul Azham Sukaiman, CFO; and Encik Hisham Maaulot, Head of Business Development and Commercial. We will start the briefing with highlights, business updates, financial performance and to be followed by Q&A. For reference, our financial results are available at both Bursa Malaysia and PGB website. The presentation material is also available at our website and at the webcast host platform. Without further ado, I'll hand over to We will start the briefing with highlights, business updates, financial performance and to be followed by Q&A. For reference, our financial results are available at both Bursa Malaysia and PGB website. The presentation material is also available at our website and at the webcast host platform. Without further ado, I'll hand over to Encik Aziz for the highlights. Encik Aziz?

Thank you, Izan. [Foreign Language] and good evening, everyone. Again, thank you for joining us today. As always, let us start with the key highlights for the first 6 months performance for this year, 2022. As you can see, we continue to deliver steady revenue growth from all business segments, obviously on the back of our continued world-class operational performance. Of course, while our revenues are underpinned by long-term contracts, it is essential to highlight that we take every possible measure to ensure our facilities are running safely, reliably and efficiently. Again, the contract is about us collecting fees based on facility availability, so running facilities safely, reliably and efficiently is very important. And of course, in addition to ensuring product delivery reliability, the excellent performance has resulted in higher incentives achieved by our Gas Processing business. Nevertheless, our financial performance, as you can see later, is starting to see the impact of external factors. We do have impact on our fuel gas price as well as foreign exchange movement. So the revenue -- the higher revenue gain is always, because of that, is coupled with higher costs. Nevertheless, some of our efforts to mitigate the high cost is actively being pursued, include improving the commercial terms in our renewed utilities contracts. And I'm pleased to share that as a result of these efforts, our quarter-on-quarter margin for our Utilities segment has actually improved when it comes to profit margin. We may have recorded a lower profit after tax year-on-year, yet, we still have a healthy cash position. And because of that, the Board today has approved an interim dividend of MYR 0.16 per share, which is the same as quarter 1 this year. Last but not least, we remain focused on ensuring our growth projects are progressing as planned. In June this year, we awarded an EPCC contract for an extension of the lateral pipeline and metering station to our customer in Banting, Selangor. we expect this project to be commissioned in August 2023, fast tracking it, yes. Now as I've said in the last quarter, Malaysian reference price is always used as benchmark for PGB's fuel price. All recall, we pay for the gas that we consume as -- still in our operation. So the MRP, short form for Malaysian reference price, moves in tandem with Brent and the strong correlation has resulted in MRP and our field gas cost to increase rather steeply in the recent quarters as Brent rose from $69 per barrel in quarter 2 2021 to $112 per barrel in quarter 2 2022, almost doubled. At the same time, ringgit continued to depreciate again U.S. dollar, so that's further affecting our bottom line. Despite the higher prices and unfavorable ForEx, we remain committed to deliver salesgas guests to our customers, and this is backed by strong demand in the country as Malaysia gradually recovers from the disruption caused by COVID-19. I can go to the next slide. Looking at our financials, comparing the first half of 2022 with the same period in 2021, PGB revenues stood at MYR 2.96 billion, higher by 9%, mainly contributed by higher revenue from Utilities segment. Utilities, of course, higher -- secured higher product prices. This is in line with the aforementioned higher fuel gas price. Coupled with higher electricity sales volume, including those under NEDA, which now almost 1 year into the contract. And the highest contribution from steam sales due to impact of customers' planned turnaround activities. Group gross profit declined to MYR 1.2 billion. Again, this is due to tighter margin recorded by Utilities segment brought about by those higher fuel gas costs. We can transfer all the fuel gas costs because the electricity is sold based on the TNB tariff. The profit after tax because of debt was lower at MYR 853 million coming from the lower gross profit and, of course, unfavorable ForEx. Our EBITDA was correspondingly lower at MYR 1.63 billion. And you can see that there is a 6% decrease in EBITDA in line with the decrease of gross profit. That's the impact of unrealized ForEx loss, a non-cash item which impacted the profit after tax. Earnings per share was lower by 16% as compared to Half 1 2021, reflecting a lower profit attributable to shareholders of the company. Dividend per share for the quarter was MYR 0.16, making it for the year total of MYR 0.32, similar to the same period as last year. Of course, as always, details of our financial performance will be presented by Shahrul after this. Moving on, business update, starting with Gas Processing. The operation at our Gas Processing continue to operate at a world-class level. The overall equipment effectiveness, the OEE, remains high for both C1, Methane, and C2, Ethane. We achieved 100% reliability, which demonstrates our commitment to the customers as well as our world-class performance as far as reliability is concerned. The high level of efficiency also has resulted in MYR 32 million of performance incentives from the -- our shipper, which we achieved in the quarter. On updates related to the business, one of our operational initiatives, the off-gas rerouting project from Terengganu Crude Oil Terminal or TCOT to our Gas Processing Kerteh Complex is progressing as per the schedule. Moving on to Gas Transportation. The pipeline network reliability for the quarter, again, sustained at close to 100%, and we achieved an average salesgas delivery close to 2.2 billion standard cubic feet per day, which is a 10% increase from second quarter of 2021. On segment updates, I'm pleased to share that we have completed the Southern PGU debottlenecking project in May, 2 months ahead of schedule. All other projects such as the network pipeline to Pulau Indah and the new gas compressor station in Kluang are progressing well. In June, again demonstrating our effort to -- on the growth side, we were awarded an EPCC contract to construct an approximately 10-kilometer lateral pipeline and metering stations to supply natural gas to a paper making plant located in Banting Industrial City, Banting, Selangor. Total CapEx, about -- just above MYR 90 million, and we expect this project to complete in August 2023. Going to Regasification segment. Both the Regasification business, both RGT Sungai Udang and RGT Pengerang, sustained strong OE performance at 100% during the quarter. RGT Sungai Udang received 4 cargoes, while RGT Pengerang received 19 cargos, making a total of 23 cargos for the first half of the year. Our ancillary services, especially the LNG truck loading service, is doing well, which you can see the truck moving across Peninsular Malaysia to serve our clients. Our LNG truck loading service has achieved 219 deliveries in the quarter. And year-to-date, we recorded double the amount as compared to the same 6-month duration last year, 678 versus about 300 last year. For this segment, we have announced an expression of interest for a potential third storage tank at RGTP. Right now, we are on track for a final investment decision by end of the year. Of course, that would depend on the bid -- on the CapEx that we are currently sourcing from potential EPCC contractor. Utilities. Overall, we continue to fulfill customers' demand. 100% product deliver liability for electricity and steam, of course, this is due to higher plant ability and reliability. Comparing quarter 2 2022 against preceding quarter 1 '22, we saw higher sales volume for all products in line with higher customer demand. Comparing quarter 2 2022 against quarter 2 2021, the same quarter as last year, there was higher customer uptake leading to higher volume of electricity and steam delivered. While lower plant ability for industrial gases has resulted in slightly lower industrial gases volume offtake. Again, last quarter, we mentioned this. We had since renewed 6 more contracts this year, of which the contract has improved pricing structure to allow pass-through costs. The higher volume, coupled with better commercial terms, has resulted in improved margins for the segment. We wish we can transfer all, but so far, only a portion of it we can transfer to the customer. And these are the things that we are looking on how to improve. So at the same time, we also mentioned about the project to build the connection to our customer PCC OM, the project is ongoing as per schedule. For projects. Again, while we are striving for operational excellence, we are also pursuing long-term sustainability through project delivery excellence and investment decision for new growth and sustainment projects. Since 2021, we have been continuously investing projects to enhance revenue contribution for GPU business, and also adding up new investment to the regulated asset base for GTR business. So far, we have sanctioned approximately MYR 1.4 billion worth of projects since 2021, including the recently-completed Southern PGU debottlenecking projects. More to come, of course, as we finalize projects in our final, with estimates that are worth more than the current approved amount. These -- some of the projects, as the one that we mentioned last quarter, was the third LNG storage tank at Pengerang, the power opportunities in Sabah, and an integrated utility solution in some of the industrial parks. So ladies and gentlemen, that's all for business update. We'll move next to financial segment with Shahrul. Over to you, Shahrul.

Thank you, Encik Aziz. Good evening, everyone. Shahrul here, and I shall take you through the financials. So we will start with segmental performance with Gas Processing. In quarter 2 2022, the business maintained its world-class operational performance, requiring 100% reliability with sustained revenues and higher gross profit amidst high operating costs. Against preceding quarter 1, revenue for the quarter started at a similar level with an increase of 1%. Gross profit was comparable at MYR 233 million. Against corresponding quarter, segment revenue increased by 2%, following high internal debt consumption incentive achieved as explained by Aziz earlier. Segment results increased by 10% in tandem with higher revenue, coupled with lower operating costs. For results, again, corresponding period first half last year, revenue improved by 2% to MYR 871 million on higher internal gas consumption incentive achieved. Segment results also improved to MYR 455 million in tandem with higher revenue. Next, to Gas Transportation. Comparing against the preceding quarter 1 2022, revenue was comparable with a slight increase by 1% at MYR 281 million, given the higher number of operating days in quarter 2 this year. Gross profit declined by 5% at MYR 175 million, mainly due to higher operating costs. Against corresponding quarter, segment revenue was comparable. Segment gross profit, however, decreased by 2% due to higher operating costs, mainly internal gas consumption cost in tandem with higher fuel gas price. Against corresponding period first half 2021, segment revenue was comparable at MYR 579 million, while segment results decreased by 5% due to higher operating costs same reason as the quarter, which is the high fuel gas price. Right, moving on to Regasification. Against preceding quarter, revenue was 3% higher at MYR 354 million due to higher reloading fee at RGT Sungai Udang compared to preceding quarter. Segment result was 5% higher at MYR 183 million on the back of higher revenue. Against corresponding quarter, segment revenue was comparable. Segment gross profit increased by 32% as a result of lower operating costs largely attributable to lower internal gas consumption costs. The IGC cost was higher in corresponding quarter due to some adjustment, which include our prior year charges. If you were to exclude the charge -- the prior year charges, IGC in quarter 2 last year would be lower than IGC in quarter 2 this year. For the half year result, again, corresponding period, segment revenue was slightly lower at MYR 698 million. Gross profit, however, improved by 7%, driven by low operating costs largely attributable to lower IGC costs. Next, to Utilities business segment. Comparing this quarter against preceding quarter 1, revenue rose by 8% at MYR 422 million, in line with higher product prices. Segment gross profit rose by 50% to MYR 32 million, in line with higher margin as a result of better commercial terms from renewed contracts, as mentioned by Encik Aziz earlier. Against corresponding quarter, segment revenue rose by 36% mainly due to higher product prices, coupled with higher contribution from electricity sales volume. Product prices were higher in line with higher field gas price which is based on reference market price, while electricity sales volume increased following commencement of electricity supply to grid under the NEDA from August 2021 onwards. Segment results, however, declined by 54%, largely attributable to the tighter margin as a result of higher fuel gas costs. Against first half last year, segment revenue grew by 39% to MYR 814 million on higher product prices and also higher electricity sales volume. Segment gross profit, nevertheless, declined attributable to tighter margin as a result of higher fuel gas costs. So next, let's move to PGB Group level. Against preceding quarter, quarter 1 2022, group revenue was higher by 3%, with all segments recording higher revenue, especially Utilities and Regasification segment. Utilities revenue increased due to favorable impact from contract renewal coupled with higher customer demand, while Regas segment revenue was higher in tandem with higher number of days in the quarter coupled with higher LNG loading fee recorded. Our gross profit saw an increase of 2% at MYR 623 million, with Utilities segment recording improved contribution on the back of higher revenue. Profit for the quarter decreased by 5% due to impact of unfavorable foreign exchange movement partially negated by the higher gross profit, as mentioned earlier. Again, corresponding quarter, Group revenue increased by 9%, mainly contributed by higher revenue from Utilities segment. Utilities revenue improved as a result of higher product prices and higher electricity sales volume recorded. Gross profit increased by 4%, with Regasification and Gas Processing segment recording lower operating costs, and this is partly negated by lower contribution from Utilities segment on the back of tighter margin following higher fuel gas price. However, profit for the quarter decreased by 10%, mainly due to unfavorable ForEx movement. Against same period first half last year, group revenue increased by 9% to MYR 2.96 billion, mainly driven by higher revenue from Utilities segment. Gross profit was nonetheless lower by 6% on the back of tighter Utilities margin following higher fuel gas price. PAT declined by 15% in tandem with lower gross profit, coupled with the impact of unfavorable foreign exchange movement as well as higher effective tax rate following the imposition of [Indiscernible]. Moving on to dividend. The Board has approved the second interim dividend of MYR 0.16 per share, amounting to MYR 316.6 million, which is payable on 23rd September 2022. This interim dividend demonstrates our commitment to ensure sustained level of returns to shareholders despite the ongoing economic conditions. With that, I end the financial section. I'll now pass the line over to Encik Aziz to share on the company update.

Thank you, Shahrul. Ladies and gentlemen, again, as always, we still have half a year to go. And these are the focus for second half of 2022. As I mentioned in the last analyst briefing, we are now in the post period of our proposal submission to FD, which we have submitted in quarter 1 2022. There have been several follow-up sessions. Of course, to clarify, discuss the assumption and numbers in detail. We expect the discussions to conclude soon, and then the RP tariff can be finalized. And which, if approved, we will achieve -- we should expect to receive another notification letter some time in quarter 4 2022 for implementation of the new RP2 tariff by January 2023. Also, updates on our current growth pursuit and potentially some other new projects that would have reached a final investment decision, hopefully, in quarter 4 this year. As mentioned earlier, we have a selection of attractive projects in the pipeline. And we are progressing with the development of this project, which we anticipate to continue to contribute to a return of PGB. Nevertheless, in as far as the current business, looking ahead, as I mentioned in the outlook, industry outlook just now, we continue -- we anticipate a continued unfavorable external factor, and this will have impact from the higher fuel gas price and ForEx, which we believe will affect our financials. We have already working on several efforts to mitigate these factors, including the one that I mentioned, improving commercial term in RP contract. And, of course, launching initiatives to reduce ForEx exposure besides few margin improvement initiatives at operational level. We hope to close 2022 on a positive note with all those efforts that we are putting in the next 6 months. That's all for now. Thank you very much. Let's move to Q&A. Thank you.

[Operator Instructions] We have our first questions from the phone line of Anshool Singhi from JPMorgan.

I have a couple of questions. Can you hear me?

Yes, yes.

Yes, Anshool.

Yes. So yes, moving on. So I have a couple of questions. Starting with just for my clarification, I wanted to know if there's a relationship between the IGC and the MRP?

Is that your only question, Anshool?

No, so I have a couple more questions. So the other questions are, can you provide some guidance for your CapEx, outstanding CapEx for this year? And then for FY '23? And also the potential CapEx for the third LNG storage tank? Then, could you also provide some insight if there are any more utility contracts left to be revised for the rest of this year, or are you planning to do any more revisions next year? And what percentage of the total utility contracts are -- do not allow pass-through for teams?

The first question, the relationship between IGC and MRP, okay. The IGC is being consumed at Gas Processing and at Gas Transmission and Regasification. For the IGC at Gas Processing, there's no impact whatsoever on the MRP because we adjust by the volume that we use. If we use more efficient, we will have incentives placed by our shipper, which is in the segment update that I mentioned just now. Because of that, we enjoy some incentives in our financial performance. On Transmission and Regasification, we purchased the gas that we use to compress the gas that we send across the Peninsula gas utilization pipeline as well as to Regas the LNG, and we purchased based on MRP market price. So if MRPs goes up, our cost on IGC will go up for those 2 segments. So that's why you see the impact, as I have highlighted in the presentation. We will be impacted by those higher MRP accordingly, yes? CapEx, I'll leave the guidance to Shahrul for year '22, '23, but we can't disclose the CapEx for the storage tank as of now. It is an ongoing exercise. We will announce should we reach FID expected in quarter 4 this year. The [ UT ] contracts, we have actually renewed all except one. Very soon, we're going to renew that one remaining contracts, yes. And Shahrul, guidance on CapEx.

Thank you, Aziz. So for CapEx, I think for the first half of this year, 2022, we spent around MYR 430 million, so we anticipate this CapEx spending to catch on in the second half of the year, double the amount that we spent during the first half of the year. So that's roughly the guidance for CapEx for this year. And for next year, we're still looking on our business plan and activities. But given some of the growth projects that we're pursuing, we're looking at figures slightly perhaps higher than what we anticipate by the end of the year for next year.

Yes. As you're aware, the last 2 years or so, our CapEx is just slightly above MYR 1 billion. Those are the amounts that normally, we spend both operational CapEx as well as [indiscernible].

So for second half, it's approximately MYR 800 million, right?

Also for the year, it is just above MYR 1 billion?

Above MYR 1 billion, yes.

[ Total ] for the year.

Okay. Just above MYR 1 billion. And I'm sorry, what was the maintenance CapEx for that? Annual maintenance CapEx?

Maintenance CapEx, roughly around MYR 500 million per year.

MYR 500 million. And just a follow-up on the Utilities contract. Is there any one-off gains being booked or there's nothing like that?