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 September 2022 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today to Izan Ishak. Please go ahead.

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

Thank you, Izan. [Foreign Language], and good morning, everyone. Thank you for joining us today. Let us start with the key highlights. Now as we close the third quarter of 2022, as always, PGB continues to deliver a steady revenue stream from all business segments. And all these are on the back of our world-class operational performance. We continue to ensure that our facilities are running safely, reliably and efficiently. In addition, in ensuring product delivery reliability, the excellent operational performance has actually resulted in higher incentives achieved by our Gas Processing business. I will elaborate further later on this. Nevertheless, the rise in Malaysia Reference Price, the MRP, then the further weakening trend of ringgit against U.S. dollar and the imposition of prosperity tax have impacted the overall group performance. With a little over a month until the end of the year, we anticipate that the trend of the higher fuel gas price and further weakening of ringgit will further impact our full year results. All this considered, nevertheless, we are able to declare an interim dividend of MYR 0.18 per share this quarter. Now let's look at the external environment out there, Page 7. If you look at this chart, you can see that brent crude price has stepped down from more than $100 per barrel in quarter 2 2022. Still at high level of USD 97 per barrel in quarter 3 2022. The MRP, however, continue to increase because MRP lacks brent by four months. And because of the lagging effect is still on the rise, on the rise, as shown by this slide. At the same time, the other factor that has affected us, ringgit, continued to depreciate against the U.S. dollar. Meanwhile, our average salesgas delivery is picking up. This is in line with the latest indicators showing that Malaysian economic activity strengthen further in quarter three, driven primarily by robust economic demand -- domestic demand. The high volume of production and product delivery are attached to higher operating costs which has brought down our profitability compared to the year before. Let's look at the financial snapshot, the financials. Comparing the nine months of 2022 with this period of 2021. PGB revenue stood at MYR 4.53 billion. This is higher by 9%, mainly contributed by higher revenue from Utilities segment on the back of higher product price and higher electricity sales volume recorded. Of course, we enjoyed a higher price because the higher gas price that we pay, part of it, we can transfer to the customer, thereby allowing us to enjoy the higher product price. The group gross profit declined by MYR 1.9 billion due to tighter margin recorded by Utilities segment. As mentioned, because of the higher fuel gas costs as well as higher operating costs at Regasification and Gas Transportation segments. Profit after tax was lower at [indiscernible] MYR 1.3 billion in tandem with lower gross profit, further reduced by unfavorable products and higher effective tax rate following the imposition of prosperity tax. Our EBITDA correspondingly lower at MYR 2.5 billion. And as you can see the 11% decrease in EBITDA also is in line with a decrease of gross profit less the impact of unrealized ForEx loss and noncash item, which impacted our PAT. Earnings per share was lower by 20% as compared to nine months of 2021. This is in line with the lower profit. Dividend per share for the quarter is MYR 0.18, making it a total of MYR 0.50. This is the same to the same period as we paid last year. Details of our financial performance. Of course, as always, will be presented by Shahrul after this. Now let's move to the business update. First, on the Gas Processing. The operation at our gas processing plants continue to be at world-class levels. Business segment continues to operate in a steady manner where the OEE or the overall equipment effectiveness remain high for both C1 and C2, methane and ethane. The more efficient we are, the less we use internal gas for our operation, hence, the more incentive we get. Also, through the term of the GPA by attracting more C2 ethane from the salesgas, we will get additional incentive. So the high level of efficiency correspond to the MYR 95 million of performance incentives achieved in the nine months of 2022. On the projects, the off-gas rerouting project from the Terengganu Crude Oil Terminal or TCOT to our Gas Processing Kerteh complex is progressing within schedule, and we still plan to meet the time line by quarter 3 2023. Next is the Gas Transportation. The pipeline network reliability for the quarter was sustained at 100% reliability, and we achieved an average salesgas delivered of 2.2 billion standard cubic feet per day, which is a 16% increase from the third quarter of 2021. On projects, there have been a slight delay on the lateral gas pipeline to Pulau Indah project due to change in construction method. However, we are managing it, and we will work on meeting the time line. The new completion date, nevertheless, will not have an impact on the cheapest gas delivery commitment as it is set to also meet the time line of the customer. As for the gas compressor station in Kluang, and the new pipeline project to Banting, things are progressing as per schedule. Moving on to rec -- Regasification, Page 12. For the Regasification business, both RGT Sungai Udang and RGT Pengerang sustained strong OEE performance at 100% during the quarter. We received a total of 41 cargoes year-to-date. Our ancillary services, especially the LNG truck loading service has continued to perform well, serving our clients up Peninsular Malaysia. Our LNG truck loading service has achieved 180 deliveries in the quarter. And by year-to-date September, we recorded higher amount as compared to the same 9-month duration last year. On the third storage tank project at RGTP, our latest assessment indicates higher project costs, and of course, this is because of the current price involving steel, construction, et cetera. So this has led for PGB to step back, we look at the execution approach and restrategize on our project approach. We're still proceeding with trying to get this project off the ground despite the challenges on the high cost environment that we are facing today. And the project is not canceled. We are targeting the final investment decision by mid-2023. This is again because of the change in the project execution approach. So the project progress will be revisited once we firm up our decision on the investment decision. Utilities. Can we move to Page 13? Overall, we continue to fulfill customers' demand. Continue with 100% product delivery reliability for electricity and steam. And this is because of the higher planned ability and reliability as well as customers' reliability, which support the higher demand. For electricity, quarter 3 2022 was lower against quarter 3 2021. And quarter 2 2022 on lower sales due to unfavorable pricing during the quarter. Steam uptake as a similar level across the quarters. Industrial gases quarter 3 2022 was at similar level to quarter 3 2021 but higher than last quarter due to customer lower plan ability in quarter 2 2022. We mentioned about the contracts last quarter. So with improved pricing structure, to allow for more balanced pass-through cost of gas, which have resulted in improved quarter-to-quarter margin for Utilities segment. However, the new commercial arrangement only partly mitigate the higher fuel cost from the rising MRP, as you will see in the segmental financial letter. On the projects, projects in the connection to PCC OM is in its final stages of completion. We expect the project to be completed in this quarter. For projects update. While we're striving for operational excellence, we are also pursuing long-term value from project delivery excellence, an investment decision for new growth and sustainment projects. Since 2021, as I mentioned to you in last quarter, we have been continuously investing in projects to enhance revenue contribution for GPU business and also adding up to regulated asset base under GTR business. So far, we have sanctioned approximately MYR 1.4 billion worth of projects since 2021. And at September 2022, we completed the southern PGU debottlenecking projects. We expect all other projects to complete within the respective time line. As mentioned earlier, the third LNG storage tank is being reviewed, and we will share the firm time line as soon as we get it finalized. There are also several power generation opportunities and integrated this solution within the industrial part that we are considering. We will announce all this accordingly when the times come. Okay. The last slide that we share with you is a little bit on our sustainability. As I mentioned to you in few of some -- a few of my communication, we approach sustainability on four strategic lenses of: continued value creation; safeguarding the environment; ensuring positive social impact; and responsible covenant. So this first time, we're going to provide some update on this and what are the efforts that we have been doing throughout 2022. The first one is on continued value creation, where we ensure stable profit generation. And as you all are aware, always underpinned by the long-term contracts. So for this year, we have concluded LTP agreement again for another 10 plus 10 years which, in this case, it will ensure that we will continue to collect the revenue for another 20 years. And of course, with our operational excellence, This, in the long term, in the short, medium, and long term will ensure steady earnings and subsequently sustained return to our shareholders, thereby ensuring continued value creation to the shareholders of PGB. Next, on safeguard the environment. This year, we have created or chartered our net zero carbon emission pathway, and in September, we published it as part of our climate change risk management framework. This report is available at our website for your reference. Our commitment to net zero carbon emission is acknowledged by FTSE4Good as we remain a constituent in the index. On positive social impact, we consistently ensuring HSE excellence through good HSE culture to ensure safe and reliable operations at our facilities. We also support the growth of small and medium enterprises around us through the many contracts that were awarded for the operation and maintenance of our facilities. We also have embarked on the sponsorship for technical programs not only to provide support for the communities but also to develop and prepare technical talent for future needs of our operations. Lastly, in regards to responsible governance, we are also acknowledged on our efforts in the area of governance. The recent announcement on MSWG-ASEAN Corporate Governance Award 2021 has proven PGB to be one of the top companies that promote responsible governance and ethical business practices. So that's all on business update. We will now move to the financial statement with Shahrul. Over to you, Shahrul.

Thank you, Encik Aziz. Good morning, everyone. I'm Shahrul here, and I shall see you through the financials. Let's turn to Page 17, we will start with segmental performance with Gas Processing. In quarter 3 2022, the business maintained its world-class operational performance, recording close to 100% reliability. Against preceding quarter, quarter 2 2022, revenue for the quarter sustained at similar level at MYR 437 million. Gross profit was slightly lower by 1% at MYR 230 million due to higher depreciation recorded in the quarter. Against corresponding quarter, quarter 3 2021, segment revenue increased by 2%, following higher internal gas consumption incentive achieved. This was resulted from higher optimization at the plant, as mentioned by Aziz earlier. Conversely, segment results declined by 6% due to higher operating costs as we are taking up with our activities in the plan. For results against the corresponding period, nine months 2021, revenue improved by 2% to MYR 1.3 billion on higher internal gas consumption in incentive achieved. However, segment was slightly lower at MYR 695 million due to higher operating costs. Next, moving on to Gas Transportation segment on Page 18. Revenue for quarter 3 2022 posted at MYR 294 million. Comparing against preceding quarter, quarter 2 2022, revenue was comparable with a slight increase by 1% on a high number of operating deals. Gross profit declined by 1% at MYR 174 million, mainly due to higher operating costs. Against corresponding quarter, quarter 3 2021, segment revenue was comparable. Gross profit decreased by 15% due to higher operating costs, mainly internal gas consumption in tandem with higher crude gas price as explained by Encik Aziz earlier. Against corresponding period 9-months last year, segment revenue was comparable at MYR 873 million, while segment results decreased by 8% due to higher operating costs similar reason at the quarter. Next, on Regasification, against quarter two this year, revenue was 1% higher at MYR 357 million as a result of higher number of operating days compared to preceding quarter. Segment result was 2% higher at MYR 186 million [indiscernible] operating costs. Against corresponding quarter, quarter 3 2021, segment revenue was comparable, segment gross profit declined by 31% as a result of higher operating costs, mainly internal gas consumption in tandem with a higher fuel gas price. For the nine months results against corresponding period, segment revenue was slightly lower. Gross profit decreased by 10%, mainly driven by the operating costs attributable to higher maintenance gas consumption costs as similar to quarter 3. Moving on to Utilities on Page 20. Comparing this quarter against preceding quarter, revenue increased by 13% to MYR 477 million, in line with higher steam and industrial gases sales. Segment gross profit rose by 66% to MYR 53 million, in line with higher volume of utility sales and better commercial terms from renewed contracts, as mentioned by Encik Aziz earlier. Against corresponding quarter, quarter three last year, segment revenue rose by 38%, mainly due to higher product prices, in line with the increase of new gas price, which is based on Malaysia Reference Price. Segment result, however, declined by 28%, attributable to tighter margin as a result of higher fuel gas costs. Similarly, against 9-month period last year, segment revenue grew by 38% to reach MYR 1.3 billion on higher product prices and higher electricity sales volume. Product prices were high in line with higher fuel gas price, which is based on MRP while electricity sales impairment volume increased following commencement of electric supplies to grid under NEDA from August last year onwards. Segment gross profit, nevertheless, declined due to tighter margin as a result of higher fuel gas costs. Next, on Page 21, PGB group level, again, preceding quarter 2 2022, group revenue was at MYR 1.56 billion, higher by 4%, mainly contributed by higher revenue from Utilities segment. Gross profit saw an increase of 3% at MYR 644 million, which relates recording improved contribution on the back of higher revenue. Profit for the quarter increased by 6% in tandem higher gross profit, coupled with higher share of profit from joint venture companies. Against corresponding quarter, quarter 3 2021, group revenue increased by 10%, mainly contributed by higher revenue from Utilities segment. Gross profit decreased by 19% due to lower contribution from all segments following higher operating costs mainly relating to fuel gas and internal gas consumption costs. Profit for the quarter decreased by 28%, in line with lower gross profit, weaker ringgit as well as higher effective tax rate from the imposition of prosperity tax. Looking against same period year-to-date 2021. Group revenue increased by 9% to MYR 4.53 billion, again mainly driven by higher revenue from Utilities in line with higher prices. Gross profit was nonetheless lower by 11% on the back of higher operating costs. PAT declined by 20% in tandem with lower gross profit also with weaker ringgit as well as higher effective tax rate from the imposition of prosperity tax. As for dividend, the Board has approved the third interim dividend of MYR 0.18 per share amounting to MYR 356.2 million, which is payable on 12 December 2022, and the interim dividend demonstrates our commitment to ensure sustained level of return to shareholders despite the ongoing economic challenges. With that, I end the financial section, I will now pass the line over to Encik Aziz to share our company update.

Thank you, Shahrul. Ladies and gentlemen. So looking at the remaining quarter of 2022, not a long time. On RP2, I think we've mentioned this, we have submitted our proposal to ST, of course, together with several recommendations as part of our effort to de-risk. One, is the price volatility of the fuel gas as we talked a lot about today, as well as potentially to de-risk the ForEx, so some of the things that we talk about today. So as of today, we have yet to get any indication on the final outcome and when new tariff will be announced. We hope to get the announcement soon, nevertheless. On projects, I have already shared the latest regarding the third LNG storage in Pengerang. Further update on our growth pursuit will be announced in 2023. Looking ahead, we anticipate continued adverse impact from the higher fuel gas price and unfavorable products affecting our financial. Nevertheless, PGB Group's performance in 2022 is expected to remain resilient even as we contend with weakening ringgit and elevated fuel gas price. Last but not least, we will continue to embed sustainability efforts within the business, whether in operations, commercial and others. We are working on the long-term target as well as various initiatives which we will share once that is published soonest. That's all for now. Thank you, everybody. Let's move to question and answer.

[Operator Instructions] And I show our first question comes from the line of Daniel Wong from Hong Leong.

Can you guys have me? Hello?

Yes, yes.

Okay. So I have two questions here. Firstly is [indiscernible] similar to last year? And second thing, can I get a sense of just you always mentioned on the higher fuel input cost and IGC internal gas consumption...

Sorry, Dan, your line is breaking.

Yes. Can you repeat both questions because we missed both questions actually.

First question is on the gas price -- gas cost. Can I check as of year-to-date or so or third quarter, how many percent of your operational cost is from IGC also well gas cost for your transportation and also on the regasification side? And my second question is will PETRONAS Gas to maintain a special dividend similar to last year?

Thank you, Daniel, for the question. As far as dividend, let's wait until we complete the year on whether we have special dividend or not. As of this moment, we are not in a position to discuss or mentioned about that. Yes. On IGC, Shahrul, do we have the number?