PETRONAS Gas Berhad (PETGAS) Earnings Call Transcript & Summary

[Foreign Language] and good day, everyone. Welcome to PETRONAS Gas Berhad's Analyst Briefing for Quarter Ended 30th September 2024. Thank you for joining today's session organized via the Microsoft Teams platform. Before we start, can someone raise the hand or speak to the microphone, just to test the system? Okay. Thanks, Hadi, Daniel. My name is Suri, Head of Investor Relations, PETRONAS Gas Berhad. And as usual, I have together with me, Encik Abdul Aziz Othman, Managing Director and CEO of PETRONAS Gas Berhad; Encik Shahrul Azham Sukaiman, Chief Financial Officer; as well as Encik Wan Khairul Nizam Wan Kassim, Head of Business Development and Commercial. The PETRONAS Gas Berhad's analyst briefing for quarter ended 30th September 2024 is divided into 4 segments. In the first segment, Encik Aziz will present the key highlights for PETRONAS Gas Berhad for the third quarter. Next, in the second segment, the business updates and financial performance will be shared by Encik Shahrul Azham. This will then Encik Aziz be followed by the third segment, where will share PGB's focus moving forward. And finally, in the fourth segment, we will open the session for Q&A. [Operator Instructions]. The presentation was also shared with you prior to the session through this Microsoft Teams channel for your reference. [Operator Instructions] For reference, our financial results is now available at both Bursa Malaysia and PGB website. To start off the first segment, I call upon Encik Aziz to share the key highlights.

Thank you, Suri. [Foreign Language] and good day, everyone. Thank you for joining us. Always, I'm pleased to share with you the PETRONAS Gas Berhad Quarter 3 2024 performance results this evening. Always, I'd like to start with factors affecting our PGB business operating environment in the past quarter, as continuing from the second quarter of 2024. The cost of doing business again stood elevated in the third quarter. For the third quarter, the ringgit strengthened to an average of MYR 4.46 against the U.S. dollar. Strongest being at MYR 4.12 on 30th September. This has had some positive impact to PGB's remaining dollar commitments. However, it is important to note that such fluctuations are relatively uncommon, and not necessarily indicative of a longer-term trend. In reference to that, the average Malaysia Reference Price, MRP for the gas price in quarter 3 was at MYR 42.44 per MMBtu. Based on the lagging factor, MRP will potentially decrease in quarter 4 2024. We believe to be an average of MYR 42.13 per MMBtu, slightly lower than quarter 3. And again, MRP will continue to track the Brent price trend. We also like to bring your attention to the Service Producer Price Index, SPPI, which also increased to 115.8 points in the third quarter, which indicates the cost of doing business remain high. The slight uptick in the professional service sector may have some impact on ours? Operating and project costs. As the cost of energy in Peninsular Malaysia continues to be significant, and this is reflected by the ICPT surcharge. As you're all aware, ICPT is under the purview of Suruhanjaya Tenaga, has been set said at MYR 0.16 per kilowatt hour effective from July 1, 2024, until end of December 2024. The government's periodic adjustment of ICPT does impact our financial performance, particularly for Utilities segments earnings, both revenue and the profit margin. In light of the current operating environment, we anticipate that business costs will remain elevated throughout the year. And as always, we will closely monitor these conditions and take the necessary measures to mitigate the impact. Considering these factors, I'm pleased to announce that our company maintained strong performance in quarter 3 and in the first 9 months of 2024, sustaining a reliable dividend for our shareholders. Similar to previous quarters, our success in delivering strong numbers anchored on our consistent operational excellence. If we look at levers, nearing 100% across all business segments, as well as progress being made in our project execution. On financial performance, PGB group revenue stood at MYR 4,923 million or MYR 4.9 billion, a slight increase of 1.2% or MYR 60 million, mainly contributed by higher revenue from the Gas Processing. This is following the higher reservation charge income under the new term. However, this was offset by the lower revenue from Utilities segment, and this is in line with the lower product prices. Nonetheless, the gross profit grew marginally by 0.8% or MYR 15 million to MYR 1.795 billion. This is due to the higher operating costs, mainly from the higher level of maintenance activities in Gas Processing and the Gas Transportation segment, and coupled with inflationary impact. This, however, was cushioned by lower fuel gas costs and the internal gas consumption expenses in tandem with a lower fuel price -- fuel gas price. Profit for the period rose by 4.8% or MYR 69 million and this is mainly driven by a reduction in financing costs, again, following the early settlement of USD lease liabilities for the floating storage unit at LNG regasification terminal in Sungai Udang, Melaka, in the corresponding period, along with favorable foreign exchange movement following the momentary strengthening of Malaysian ringgit on USD lease liabilities for jetty usage at LNG regasification terminal in Pengerang, Johor. Similarly, EBITDA was correspondingly higher by 5.1%, about MYR 126.5 million at MYR 2.6 billion. EPS increased by 3% reflecting a higher profit attributable to shareholders of the company. Dividend per share for the quarter was approved at MYR 0.18, similar to the corresponding period last year. And again, this demonstrates the group commitment to ensure sustained level of returns to the shareholders. We have delivered strong financial performance. At the same time, we are also making significant progress in our business for this quarter. We have received initial letter of notification on August -- in August 2023, to develop 100-megawatt power plant project in Kimanis, Sabah. The project is progressing as with the recent groundbreaking ceremony on the 12th of November. MYR 700 million project is expected to start commercial operations by March 2026. For the power plant in Labuan, as we have mentioned previously, we have received the initial letter of notification in July 2024, to develop 120-megawatt power plant in Labuan. We have also reaped maximum third term GPA incentive, and this is despite more stringent operating requirement imposed by the shipper. Now we have come to the detail -- we come to the details of our business and financial performance. This section, as always, will be presented by Shahrul. Over to you, Shahrul.

Thank you, Encik Aziz. [Foreign Language] and good day, everyone. I shall take you through the business and financial performance for quarter 3, 2024. Operational excellence, as mentioned by Encik Aziz, is crucial of our business, ensuring safety and reliability across our 4 segments. We prioritize a low operational risk and infrastructure reliability to make sure -- to ensure our stable revenue. During this period, Gas Processing segment, by leveraging on digital tools has improved its plant efficiencies. This led to our plants achieving nearly 100% of OEE demonstrating world-class performance. Although our performance-based structure incentive was stretched under the lower operating parameters in the third term GPA, we were still able to achieve maximum incentive throughout the 9-month period. For segmental financial performance, against the preceding quarter, quarter 2, 2024, segment result was lower by 4.6% at MYR 199 million due to lower revenue from IGC incentive, coupled with higher operating costs due to higher level of maintenance activities as well as depreciation. Against the corresponding quarter, quarter 3, 2023, segment results increased by 2% or by MYR 3.9 million, in line with higher revenue, but this was partially offset by higher operating expenses from higher level of maintenance activities carried out in quarter 3. Against the corresponding period 9 months 2023, segment result decreased slightly by 1.1% due to higher level of maintenance activities, coupled with inflationary impact. Moving on to the next business segment. For Gas Transportation business performance, the group's pipeline network achieved close to 100% reliability in line with the corresponding period. During the quarter, Gas Transportation segment achieved the initial acceptance for the gas pipeline project in Kertih, which was completed in quarter 4 2023. For segmental financial performance, against the preceding quarter, quarter 2, 2024, segment result was at MYR 152 million, low against preceding quarter 2 2024, on the back of high operating expenses, mainly coming from the high level of maintenance activities performed during the quarter. Against the corresponding quarter 3 2023, segment result increased by 2.8% or MYR 4.1 million, following higher revenue, but this was partly negated by higher operating expenses mainly from higher level of maintenance activities and depreciation during the quarter. Against the corresponding period 9 months 2023, segment results grew by 8% or by MYR 35 million in line with higher revenue and lower internal gas consumption expenses. These were partly offset by higher maintenance and depreciation expenses following the higher number of project completion during the period. Moving on to the Regasification segment. Our group's LNG regasification terminals in Sungai Udang, Melaka and Pengerang, Johor has seen strong reliability performance close to 100%. For segmental financial performance against preceding quarter, quarter 2 2024, segment result was a MYR 158 million, which is comparable, against result in the previous quarter. Against the corresponding quarter, quarter 3, 2023, segment result was marginally lower by 1.8% due to higher operating expenses, mainly from higher level of maintenance activities performed during the quarter. Against the corresponding period, 9 months 2023, similarly -- similar results again this 9-month period was lower by 3.1% due to higher operating expenses, mainly from depreciation, maintenance activities as well as the yearly contractual increment of our floating storage units operating lease in Sungai Udang, Melaka. So combining these 3 segments: the Gas Processing, Gas Transportation and Regasification segment, this 3 segment contributed 87% to our bottom line for the following is contributed by the Utilities segment. Moving on to the Utilities segment. For the period, Utilities plant achieved 100% product delivery reliability for electricity while close to 100% for steam and industrial gases. For electricity, for a 9-month period year-to-date 2024, volume was higher than the same period last year due to higher power offtake from customers as well as due to higher TNB export recorded during the period. This is due to favorable system marginal price, or SMP. For steam, customer offtake as at year-to-date 9-months 2024 is comparable against the same period last year. For industrial gases, high product sales volume recorded in year-to-date 9 months 2024 due to higher consumption from customers in line with higher demand. For segmental financial performance, Utilities performance against the preceding quarter, quarter 2 2024, segment result improved by 16.5% or by MYR 12.3 million to MYR 86.9 million, following higher revenue in line with higher demand, coupled with lower utilities costs and maintenance activities. Against the corresponding quarter, quarter 3 2023, segment results increased by 13.4% or MYR 10.3 million. In tandem with the improved revenue, following higher customers uptake and this partially offset by higher depreciation and gas cost. Against the corresponding period 9 months 2023, segment result marginally rose by 0.9% or MYR 2.1 million on the back of favorable impact of lower fuel gas costs in line with the downward movement of average Malaysia Reference Price, or MRP, and this was partially offset by higher depreciation. So that's the performance update for Utilities segment. Let's now move on to PGB group financial performance. As mentioned by Encik Aziz earlier, the group sustained its strong performance across all of its plants and facilities. Again, the preceding quarter, quarter 2, 2024, group revenue slightly increased by 0.5% against the preceding quarter, mainly contributed by Regasification and Gas Transportation segments. Despite this higher revenue, gross profit was comparable to preceding quarter following high level of maintenance activities performed in quarter 3. However, profit for the quarter increased by 10.2% or MYR 50.3 million, mainly contributed by the favorable foreign exchange movement following the momentary strengthening of Malaysian ringgit on U.S. lease liabilities in relation to jetty usage at LNG regasification terminal in Pengerang. And this is coupled with the highest share of profit contribution from our joint venture companies. Against the corresponding quarter, quarter 3, 2023, group revenue increased by 6.8% or MYR 105.6 million, mainly contributed by 3 main reasons. The first one, Utilities segment with high customers offtake. And the second one, because of the higher gas processing revenue, following higher resolution charges income under the new term. And thirdly, because of the higher revenue from Gas Transportation following a tariff adjustment. Gross profit increased marginally by 2.6% or MYR 15.4 million as the higher revenue was partly negated by the higher operating expenses on the back of high fuel gas cost from Utilities segment, coupled with inflationary impact for other cost element, especially for our operation and maintenance activities. Our profit for the quarter was correspondingly higher by 10.2% or MYR 50 million to MYR 541.2 million. Comparing against corresponding year-to-date 9 months, our group revenue increased slightly by 1.2%, mainly attributed by higher revenue from Gas Processing, following higher reservation charges under the new term and this was offset by lower revenue from Utilities segment in line with lower product prices. Our gross profit marginally increased by 0.8% of MYR 15 million due to higher operating costs, mainly from higher level of maintenance activities in Gas Processing and Gas Transportation segment, are coupled with inflationary impact. This was partly cushioned by lower fuel gas costs and internal gas consumption expenses, in line with lower fuel gas price. Profit for the period rose by 4.8% or MYR 69 million at MYR 1.5 billion, mainly driven by reduction in financing costs following early settlement of dollar lease liabilities for our FSU storage in LNG regasification terminal in Sungai Udang in the corresponding period, together with a favorable impact of the -- favorable exchange movement following the momentary strengthening of ringgit on USD lease abilities for jetty usage at LNG regasification terminal in Pengerang, Johor. Moving on to balance sheet. As of 30th September 2024, our group's total assets was at MYR 18.5 billion, slightly lower by 4.1%, mainly due to the repayment of Islamic financing facility that was made in March this year, amounting to MYR 1.2 billion. But this was partly cushioned by the cash generated from our operations during the period. Correspondingly, subsequent to the repayment of Islamic financing facility, our total liabilities decreased by 21% to MYR 1.15 billion as a result of those repayments. Even though there was a reduction in cash and cash equivalent to MYR 2.7 billion during the period, the cash balance remained healthy, with some headroom for our existing and upcoming growth activities. As for the dividend, mentioned by Encik Aziz, the Board has approved the third interim dividend of MYR 0.18 per share is payable on 21st of December 2024. And this demonstrates our commitment to ensure sustained level of returns to shareholders despite this LNG business operating conditions. We're still able to provide healthy level payout, and I think it is higher than what we committed in our dividend policy. This is all for me. I will now pass the line over to Encik Aziz to share on the company outlook.

Thank you, Shahrul. Ladies and gentlemen, again, our results demonstrate our continued delivery of operational excellence. Inshallah, we are poised to continue strong performance throughout the remainder of 2024. And our focus remains steadfast along with 4 lenses of our sustainability duty. Along the sustainable value creation lens, we remain committed to ensure safe, reliable and efficient world-class operations to sustain our profit and value to the shareholders. While we endeavor to ensure flawless project delivery in terms of safe and timely execution within budget and quality, we have made strides in our growth and value-creation pursuits, where, as I mentioned in the introduction, very recently, we had the 15th anniversary celebration of our Kimanis power plant, as well as the groundbreaking ceremony for the second 100-megawatt power plant alongside the existing Kimanis power plant. This new 100-megawatt is a collaboration between PGB, through our subsidiary, PG Energia Sendirian Berhad and NRG Consortium Sabah Sendirian Berhad, a subsidiary of Yayasan Sabah Group. As mentioned by Sabah Chief Minister, Datuk Seri Hajiji Noor, the MYR 700 million KPSB2 power plant is expected to achieve commercial operations by March 2026. That's the first power plant in Kimanis. We are also working on the second power plant, which is Patau-Patau power plant in Labuan, as we have mentioned. The initial letter of notification which is part of the process towards the letter of notification to facilitate for negotiation on PPA is there for us, and we are moving forward with our potential partners to the next step of the development of this power plant. In the lens of safeguarding the environment, we have managed to limit our GHG emission within expectation to achieve the NZCE 2050 targets as we have shown in our sustainability blueprint. And this -- so far, our achievement was through our carbon abatement strategies and also a very important energy efficient operations. As mentioned in the previous analyst briefing, we have, to date, has surpassed our 4R deliverables. Most of the recovery or the waste have been done in the first half of the year, and this was done during the scheduled maintenance activities. Through the positive social impact lens, we contributed actively to our operational areas, particularly focusing on education, community well-being and the environment. Aligning to that, we have recently launched our flagship program, a collaboration with Yayasan Hijau Malaysia, which involved installing solar panels in selected areas in Melaka as the first step to enhance community well-being as well as to promote solar energy use and, of course, to reduce greenhouse gas emissions. On responsible governance lens, we are pleased to announce that PGB recently won the gold award for Utilities at the Edge ESG Awards in October. We secured the highest ratings among peers by ensuring maximum disclosure and meeting sustainability requirements. Our dedication to responsible business practices and the effective data use has positioned us as leaders in sustainability within our industry. Moving forward, our focus will be on completion of growth projects and sustained operational excellence. Among the projects to look forward to are: completion of our LNG storage in Pengerang, sometime middle of next year; the completion of the Kluang compressor station project, expected to complete by end of this year; and the completion of Jeram compressor station, expected to be by end of 2026. While these projects are on track, we are looking at other growth prospects, and the recent announcement on Budget 2025 presents several opportunities for PGB. Government announced the introduction of carbon tax in 2026, alongside tax incentives for companies that are developing CCUS technology to reduce GHG emissions. And this promote strong incentive for PGB to explore the viability as well as the feasibility of CCUS. This would give us a significant value and growth opportunities in the future. Additionally, we foresee ample opportunity in the domestic energy landscape, particularly in gas demand-driven prospects. Retirement of coal plants, coupled with the growing energy demands of data centers, will definitely increases the reliance on natural gas as a cleaner and more reliable energy source. The planned retirements of coal plant by TNB will phase out of 7 gigawatts of power capacity by 2023, and we anticipate a 30% surge in gas demand to fill in the energy gap and maintain grid reliability. On top of this, rapid growth of data centers in the countries, which are highly energy intensive, is projected to further amplify gas demand to an estimated 70% surge. And being the only the biggest gas infrastructure company in the country, this presents a substantial opportunity for capacity expansion of our pipeline as well as regasification infrastructure. And of course, potential development of new regasification terminals. Leveraging on our capability and experience with Kimanis power plant, we are also in a strategic position to explore for the viability of developing a gas-based combined-cycle power plant to address the increase in the demand for power sector, particularly in the Peninsula Malaysia. While the current demand from data centers is for electrical power, there is also potential of an integrated energy solution by utilizing coal energy from our regas terminal to provide sustainable cooling solution for data centers. This approach not only maximizes the use of our own existing infrastructure, but also aligns with effort to reduce reliance on traditional electricity-driven cooling methods. By capitalizing on this larger national development, PGB can solidify its role in enabling a cleaner and more sustainable energy future and to be catalyzing the government's energy transition efforts and achieving NETR aspirations. Thank you. And over to you, Suri, for the Q&A.

Thank you, Encik Aziz and Che Shahrul. We have now come to the Q&A session. [Operator Instructions] Let's start, ladies and gentlemen. And the first question comes from Daniel.

Can you hear me?

Yes, yes.

My first question is on, overall, the group activities for the fourth quarter, are we expecting continued higher maintenance cost or depreciation in the upcoming quarters -- in the upcoming fourth quarter for all the segments? Because I noticed that in your -- throughout your presentation slide, you have been continued highlighting higher depreciation, higher maintenance activities over the last 3 quarters of this -- for all the segments.

Okay. That's the one question, right? Daniel. Okay. As far as maintenance, yes, we expect the number to be higher. Particularly, as you know, beginning of the year, it was the planning time. Now as you move deeper into the year, is the execution. And we always pick up the pace towards the latter part of the year. So we expect to see a higher maintenance activities as well as spending in the fourth quarter. And depreciation, because we've been spending on those maintenance as well as on growth projects. So you would expect we will capitalize a bigger number, then you see a higher depreciation accordingly.

Thank you, Daniel. We have the next question. We have a question in the chat box from [ Ong Tze Hern ]. Can I know how much is the PBS for Gas Processing in the latest quarter? Did you get the full amount?

Thank you, Ong. I'll get Shahrul to answer the question.

Yes. Thank you for the question. Up to September 2024, we were able to maximize the PBS incentive. I think for year-to-date, we have actually collected, quite, MYR 17 million for the PBS. And I think if this trend continue, we can actually collect the maximum PBS throughout the year.

The PBS is dependent on the operational performance. So you see from the operation performance, we have sustained world-class operation. So we expect to sustain and realize that amount accordingly. But as I mentioned, it depends on the sustainment of that operational excellence.

And a follow-up question on that. That the maximum PBS is MYR 120 million per year...

We'll get back to you, Ong.

Okay. We'll go back to the queue here. Daniel again, is there a second question or...

Second question.

Okay.

With regards to the RAB for this transportation and regasification plant. So is the year-to-date volume is in line with the assumed volume? Or is it lower or higher? Because in RAB, you have assumed a certain volume. That's how you get the rate of the tariff for transportation and regas. So the question is, until year-to-date, is the volume intact in line with the assumption? Or is it lower or higher than the assumption here?

I don't have the exact number, but I think it's about there in the budget. But just to provide you with better clarity, the business of Regasification is on capacity payment. So the shipper has booked a full payment irrespective of utilization. If we make the capacity available, we will collect full revenue, full capacity reservation payment. So the -- how much the flow of the gas is not going to impact the 2 regasification financial significantly. Is that okay, Daniel?

Sorry, we mean for regasification, the last part of the business is dependent on the capacity payment. So the rate that is provided by the RAB by the Energy Commission on the rate, it doesn't really affect much in terms of you overall revenue, is it?

Yes. As I mentioned, as long -- how much the gas flow depending on the shipper's nomination. So if the shipper nominate the full capacity, if we make the capacity available, then we collect the reservation. If the shipper nominate 50%, we were able -- we are able to deliver that 50%, we still collect the full capacity reservation.

I see. So then how has the role of this EC in determining the regasification tariff?

I think we have given this briefing at the beginning of RP2. Roughly the RAB, which is the opening value of the asset, plus the CapEx that we're going to invest on that asset, and the maintenance or growth and the OpEx. Typically, OpEx are passed through. And then whatever the amount will be divided by the capacity reservation, and you get the tariff.

And Daniel, the next...

Maybe just the question on the maximum PBS. I mentioned just now, year-to-date, we have actually like about MYR 70 million of PBS incentive. And for the full year, the maximum PBS incentive is lower than MYR 100 million for the full year.

Okay. Yes, the answer to Daniel's question just now.

Next in line is Anshool. Yes, Anshool?

Can you hear me?

Yes.

Yes. I just had a couple of questions. To start with, the performance for the Utilities segment. I believe given the lower ICPT surcharge for this quarter, we would assume that we could have seen Utilities' contribution declining, but that did not happen. If you could elaborate on what were the key drivers for the better Utilities business performance?

I can answer that. For Utilities segment performance, despite the lower ICPT, I think the corresponding quarter and included performance were better mainly because of 2 things. First, the higher volume offtake by customer because we show lower unplanned shutdown on the customer side during this period. Secondly, because the slightly lower MRP on the gas price compared to the corresponding period. So those 2 actually negate the impact of lower ICPT.

Was there any volume sold under the NEDA scheme again?

Yes. They are.

Was that the full -- I believe, around 20 megawatts is what is eligible? Did you reach that threshold?