PETRONAS Gas Berhad (PETGAS) Earnings Call Transcript & Summary

I'd like to highlight comparing the full year of 2024 with 2023. First, the group revenue stood at MYR 6.5 billion, a slight increase of 1.4% or MYR 92.8 million. Mainly it's driven by higher revenue from the gas processing. This is arising from higher reservation charge that come together with the new term that we signed last year. This, however, was offset by lower revenue from utility segment, mainly due to lower product prices. Gross profit declined marginally only 0.4% or MYR 9.7 million at MYR 2.3 billion, mainly as a result of rising operating costs across all segments, also from higher level of maintenance activities and depreciation expenses and this is in line with the higher completion of capital projects. However, that was cushioned by lower gas -- fuel gas costs and internal gas consumption expenses in tandem with the lower fuel gas price. Consequently, the profit before tax, PBT, decreased by 1.1% or MYR 25.7 million, primarily due to a lower share of profit from joint venture companies. However, PGB effectively mitigated this impact through strategic risk management, including, as I mentioned, is now the settlement of USD lease liabilities for LNG terminal, biggest terminal in Melaka, and that has reduced our financing costs. Additionally, the favorable foreign exchange movement from the strengthening of Ringgit Malaysia to USD this -- on the lease liabilities for the Pengerang LNG terminal, also further cushioned the decline. Despite lower PBT, profit for the year rose by 1.2% or MYR 22.6 million, and this is from the lower tax expenses following the one-off recognition of the ITA or the year of assessment 2024. Similarly, EBITDA was higher by 2.7% or MYR 87.6 million, with a lower PBT mainly due to lower share of profit from joint venture companies and higher depreciation as mentioned. Earnings per share increased by 0.9%, reflecting the higher profit attributable to shareholders of the company. And the dividend per share for the quarter was approved at MYR 0.22 per ordinary share, similar to the corresponding period last year. And again, I'd like to reiterate that this demonstrates our commitment to ensure sustained level of returns to shareholders. We have delivered strong financial performance, but I'd like also to highlight that we are also making significant progress in our business for this quarter. As I mentioned, we have received a letter of notification in August 2024 to develop 100-megawatt power plant in Kimanis. I'm happy to report that the project is progressing well from breaking last November. The MYR 700 million is expected to start commercial operation by March 2026, and this is considered a fast-track project. While the second power plant that we have been highlighting to all of you, the Labuan power plant, we have received the letter of notification. What is being mentioned in the slide is the high loan. Happy to report that this morning, we have received the LOM. So the project is really to progress in the next stage of construction. On the sustainability, we have received a good recognition, a higher score of 4.7 for FTSE4GOOD rating from Bursa Malaysia, and this has increased from 4.1 we achieved in 2023. And a lot of increase in this scoring is primarily because of improved scoring in our environment and social disclosure, while we have always maintained almost perfect score for the government project. Moving on into our GPA guided by the new operating philosophy. We successfully secured the full 12 months of incentive and reaped the maximum benefit for the third term GPA. And under the third term GPA, significantly stricter requirement was imposed by the shipper under the latest GPA framework that we signed for the new term. We have also increased our power export to the grid during the quarter, NEDA -- and this one, we are proud to note that today, the export to NEDA is on an AI-based management tool, which will help us to export into the grid through the analytics that was done by the AI. Now as you're aware, also, our business book model is largely driven by CapEx return, where we invest in infrastructure projects and on track with our CapEx plan. Having said that, we have made significant CapEx investment this year directed toward PGB's growth initiative. As highlighted in our previous announcement and briefing, several of these projects are progressing well. Notable examples include the LNG storage development and LNG-driven ASU in Pengerang, along with our ongoing power plant project. This investment reflects our commitment to long-term value creation and sustainable business growth. As a responsible corporate citizen, we are committed to making a positive impact in the communities where we operate. In line with this commitment, we have launched our flagship CSR program in collaboration with Yayasan Hijau Malaysia. Through this initiative, we've been installing solar panels at selected locations in Melaka as a starting point. And this will be contributing to boost community well-being and the reduction of clean gas house emission for us. Now we have come to the detail -- we'll come to the details of our business and financial performance. As always, this section will be presented by Shahrul. Over to you, Shahrul.

Thank you, Encik Aziz. Good day, everyone. I shall take you through the business and financial performance for quarter 4 2024. So let's start with Gas Processing segment. Our gas processing performance was crucial in 2024 as we entered into the first year of our term of gas processing agreement with PETRONAS. As mentioned by Encik Aziz earlier, despite the most stringent incentive benchmarks, we successfully met the target set by PETRONAS, showcasing the dedication and expertise of our management and operation teams, leveraging on digital tools such as our tech center and also IGC optimization initiative that we have done at the gas processing business segment. On that note, in terms of the financial performance for quarter 4 2024 against preceding quarter, quarter 3 2024, the gross profit declined by 6.9% due to the higher operating costs in line with the higher level of maintenance activities and also higher depreciation costs, coupled with lower revenue from IDC incentive for quarter 4 as compared to quarter 3. Against the corresponding quarter, quarter 4 2023, Gas Processing segment gross profit rose by 6.5% or around MYR 11 million, driven by higher revenue following higher reservation charges income under the new term of GPA, which was effective early this year and partially offset by higher operating expenses from higher level of maintenance activities. For the 12-month period against the corresponding period last year, segment gross profit saw a marginal increase, about close to 1%, reflecting higher charges income under the new term and that was offset by higher level of maintenance activities incurred during the year. Moving on to the next segment, Gas Transportation. In Gas Transportation business segment, we successfully delivered projects under the RP2. At the same time, we maintained our operational excellence by effectively managing our aging assets, ensuring regulatory compliance and balancing stakeholder expectation to sustain long-term business value. So for the financial performance for quarter 4 against preceding quarter, quarter 3, segment gross profit decreased by 20%, mainly due to higher level of operating expenses because we had higher level of maintenance activities in quarter 4 as compared to quarter 3. And we also incurred higher depreciation expense in quarter 4 in line with higher completion of capital projects. Against the corresponding quarter, quarter 4 2023, the results decreased by about 3.4% due to higher operating expenses, mainly from depreciation and maintenance costs, but this was offset by higher revenue from upward tariff adjustment, mainly related to revision in internal gas consumption expenditure as allowed by incentive-based regulation framework of Suruhanjaya Tenaga. For the full year 12 months against corresponding period last year, segment result grew by 5.4% or about MYR 30.5 million, mainly due to higher revenue from the upward revision of tariff, coupled with lower IGC expenses and partially offset by higher level of maintenance and depreciation expenditure incurred during the year. So let's move on to the next section, next business segment, Regasification. For the Regasification segment, we continue to maintain our operational excellence through effective asset management and optimizing equipment efficiency for the plant reliability and ensuring reliable gas supply to the network. Through strategic project execution, we also maximize capacity and sustain long-term business value for Regasification business. For the financial performance, quarter 4 against preceding quarter, quarter 3, segment gross profit was lower by 19%, mainly due to high level of maintenance activities performed in quarter 4 -- against the corresponding quarter, quarter 4 2023, the gross profit was lower by 15%, mainly due to higher operating expenditure mainly from maintenance activities. And for the full year 12 months period against last year, segment result was lower by 5.9% due to higher level of maintenance activities as well as higher depreciation costs. And this was partially mitigated by lower internal gas consumption activities as a result of our optimization initiatives. Moving on to the next business segment, Utilities. For Utilities segment, we continuously enhance our human efficiency while ensuring reliable product delivery to our customers. As briefly mentioned by Encik Aziz earlier, the deployment of utilities optimizer has further improved our efficiency, particularly by increasing the number of electricity that we supply to the grid via NEDA scheme. And the digital automation system also enable operation of our cogen plant, optimizing power and steam production to effectively align with demand, ensuring both efficiency and reliability. For electricity, for 2024, volume was higher than last year, mainly due to higher power uptake from our customers and higher export to the grid driven by attractive system marginal price or SMP. For Steam, customer offtakes in 2024 was marginally lower due to lower consumption from our customers following its respective plant shutdown. For Industrial Gases, we saw higher sales volume in 2024 due to higher consumption from our customers in line with high demand. On the financial numbers, against the preceding quarter, quarter 3 2024, segment gross profit decreased by 45% due to lower revenue from electricity, steam and industrial gases product following lower customer offtakes, but this was offset by lower fuel gas costs. Against the corresponding quarter, quarter 4 2023, segment gross profit decreased by 16%, following higher operating expenses, mainly from higher maintenance activities and gas costs, coupled with slight decline in revenue due to decrease in sales volume from electricity and steam products. For the full year 12-month period against last year, segment result declined slightly by 22.4%, following lower revenue and higher maintenance expenses, but this was cushioned by favorable impact of lower fuel gas costs following downward movement of average MRP in 2024 as compared to 2023. So let's move on to the financial performance for the group. As explained earlier, we sustained our commendable performance across of our plants and facilities. And our financial performance in 2024 can be attributed to 3 main factors. First and foremost, we managed to sustain our operational excellence where we maximize EPA incentive via the new operational philosophy as well as the optimization of UT, content and IGC, leveraging on digital tools. Secondly, our disciplined cost management, where we maximize our CapEx utilization by concerted efforts, and we also continue to optimize our expenditure in line with the cost discipline that we have instilled in our daily operation. And finally, we employ effective risk mitigations by deploying foreign currency hedging strategy to mitigate our cost fluctuations. And as mentioned by Encik Aziz earlier, we also actually did early settlement of one of our U.S. liabilities to reduce our financing costs and exposure to foreign currency movement. On the numbers, for full year 2024, comparing against corresponding year-to-date last year, our group revenue stood at MYR 6.5 billion, a slight increase of 1.4%, driven by higher revenue from gas processing following higher realization charges under the new term. Gross profit declined marginally by 0.4% as a result of rising operating costs across all segments, but this is in particular due to higher level of maintenance activities as well as higher depreciation expenditure. Profit for the year rose by 1.2% due to lower financing costs following the early settlement of our USD lease liability for RGTSU in prior year, favorable ForEx movement for the existing lease liability, coupled with lower tax expense following the one-off recognition of investment tax allowance for year of assessment 2024. In 2024, we have recognized the deferred tax asset for the investment tax allowance given to our assets in Santong [indiscernible]. And this were offset by lower share of profit from our joint venture companies. Moving on to the -- our balance sheet. Our total assets was at MYR 18.8 billion, lower by 2.9%, mainly due to bullet repayment of our Islamic financing facility made in March last year, amounting to MYR 1.2 billion. And this reduction in cash was partially cushioned by cash generated from our operations during the year. Correspondingly, total liabilities decreased by 18% as a result of the bullet repayment of our Islamic financing facility. Even though there was reduction in cash and cash equivalent to MYR 2.6 billion during the year, the cash balance remained healthy with some headroom for existing and upcoming growth projects. For 2024, as at the 31st December 2024, we saw our PPE balance being higher, driven by asset growth from increased CapEx, and this reflects our strategic investment and expansion initiatives. Despite the high CapEx spending, we sustained a strong dividend leveraging robust earnings and efficient capital management. The Board has approved a fourth interim dividend of MYR 0.22 per share payable on 20th March 2025. And this demonstrates our commitment to ensure sustained level of return to the shareholders despite the challenging business operating landscape. We're still able to provide healthy level of payout more than what we have committed under our dividend policy. That is all for me. I will now pass the floor to Encik Aziz to share on the outlook for PGB.

Thank you, Shahrul. Ladies and gentlemen, our results reflect PGB's commitment to operational excellence. [Foreign Language], we were well positioned to continue to deliver the strong performance throughout 2024. Moving forward, while we remain dedicated to maintaining safe, reliable and efficient world-class operations, which is a basic foundation for us to uphold profitability and deliver value to our shareholders, we are also excited on the growth opportunities, which is in line with our growth strategy that we have highlighted to all of you many times. Now before I talk about some of the areas of growth that we're looking at, one of the big thing for PGB is on the CapEx and project progress. On that note, PGB in 2024 has made significant capital investment, not only to sustain our operation, but also to support -- to deliver the growth projects that we have FID throughout the year and in 2023. All projects funded through major CapEx, as mentioned, are progressing well, and this is reinforcing our commitment to infrastructure development and long-term value creation. Our regulated CapEx spending is on track. As all aware, RP2 has another year to go, and this CapEx spending is critical, ensuring compliance with the regulatory framework while securing projected returns. This disciplined approach safeguards a stable and predictable earnings for the company. Now looking at the growth area, one focus area is sweating the assets beyond our core projects. As all of you are aware, PGB has a lot of land banks from our right of way. So we are looking at sweating this asset in new step-up business. We also have still -- despite our sanctioning of the ASU project from the coal energy, we still have significant potential of coal energy that we can sweat to support our growth aspiration. So this is one of the focus areas that we're looking at as one of the core growth for the company. Second is new gas and electricity sector infrastructures, and this is to meet the demand that the country is projecting, especially with -- to support the data centers that the country intend to attract as an investment. So what we are focusing here is leveraging on our capabilities in projects for new gas infrastructure as well as power generation infrastructure. I think we are in excellent position to capture the opportunities in these 2 areas. And sure that I'm sure that we will be required to meet the increasing demand, as I mentioned. Key to this is our networking and engagement with the stakeholders so that we can secure all these opportunities in the infrastructure that are required -- and expansion that are required to meet the demand. So we look forward to secure these opportunities and hopefully, will continue to support the growth for the company. And that's all for now. Thank you, and over to you, Suri.

Thank you, Encik Aziz and Che Shahrul. We have now come to the question-and-answer session. [Operator Instructions] The floor is yours, ladies and gentlemen. We have Daniel.

Can you hear us, Daniel?

Yes, I can hear you guys. Can you guys hear me?

Yes.

Okay. I have 3 questions here. Firstly is on the JV, why has it declined in the fourth quarter compared to previous quarters because it's quite low in this quarter. Secondly, on the -- okay, on the ITA for 2024, how much was recognized? Do we expect further ITA to be recognized in this year or coming years? Thirdly is on the GPA incentive. How much it recognized for the full year of 2024. That's all for me.

Shahrul will take this.

Okay. Thank you, Daniel. I think if you're comparing quarter 4 against quarter 4 last year, I think why there's a significant reduction in the share of profit from JV and associates is mainly if you remember during last year's analyst briefing, we did share with the analysts that we -- one of the JV company recognized the -- what we call -- they had one-off tax optimization that was recognized in quarter 4 last year. And we don't have that in quarter 4. So I think if you were to normalize that one-off recognition of that tax optimization by one of the JV last year, I think the contribution of the share of profit will be not far off compared to quarter 4 last year. So that's the first question. The second question, if I get it correctly, you're asking about the incentive IPA that we recognized in 2024 is in relation to the tax incentive granted under the ECER for the assets modernization and upgrading for our gas processing plant in Santong. And this is a one-off incentive given by under the ECER region, and we don't anticipate the same to be recognized in the future. The third one is in relation of gas processing incentives. As you guys are aware, there's 2 parts of it. The first one is the performance-based scheme where we need to prove that the plants remain at high reliability level for us to secure the performance bonus. And the second part is the IGC incentive where if we actually utilize lower volume of gas for the purpose of our operation, we will be incentivized on the low volume and depending on the gas price. So in 2024, we have actually recognized close to MYR 100 million in relation to this incentive. But the big chunk of it is coming from the IGC incentive, where we've actually been incentivized or being rewarded based on the lower gas volume utilized for the operation.

Just a follow-up. On the JV, if you compare quarter and quarter, actually it dropped quite significantly also from MYR 60-odd million to MYR 14 million. Is it...

JV?

Yes. On a quarterly basis, compared to third quarter -- compared to third quarter and fourth quarter.

Okay. Because in the fourth quarter 2024, one of the [indiscernible] we had what we call some refinancing exercise where we actually had to early settle one of the loan. So we incurred some premium on the buyback. But the intention is to actually refinance that to secure a lower interest in the market. So it's also a one-off thing.

So last year -- last quarter, MYR 60-odd million, that was because of a one-off on some corporate exercise in one of the JV. So we are looking at a running rate of MYR 15 million per quarter -- MYR 15 million per quarter, that is a healthy rate, is it? Or so-called MYR 60 million per quarter, that's a healthy rate? Sorry, MYR 60 million per annum is a healthy rate, is it?

For the whole year, for the share profit. Okay. Depends how you define healthy. But I think you're right, I think more or less on that level. But we also, as mentioned by Encik Aziz, we're working on a few more growth projects in the JV. So we expect that higher contribution from JV, yes.

I see. Okay. On the GPA incentive, MYR 100 million for this year. Last year was MYR 128 million, was it?

Last year, sorry I mentioned close to MYR 100 million. Last year was MYR 128 million. Sorry, my bad. This year was close to MYR 150 million, yes.

MYR 150 million? I see, okay. That sounds more convincing.

Next one, who's that? No one, okay.

Another hand, Daniel?

Who is it? Max, okay.

Two questions from me. Can I check with you how much is the contribution coming in from NEDA maybe for the full year?

Can I get back to you on that? I'm checking the number now. Maybe we can move to the next question. I'll get back to you, yes.

Yes. Okay, sure. All right. Also maybe the second question is that also kind of a bit related. Of course, you did mention that you do expect the sort of increase in demand of gas given that, obviously now, I think a lot of demand is coming from data centers. So I think you also need more gas to help support the baseload for, let's say, for the energy sector. Can I get a sense because, obviously, this will have a cross impact of all the different segments. Do you have sort of a long term or maybe outlook in terms of what sort of gas demand growth you're looking at, let's say, over the next few years or so? And also, of course, this will help inform in terms of what sort of CapEx you need to [indiscernible]. Yes, maybe just what's your expectations on gas demand?

I'm not sure whether we have the accurate number. But based on the government projection for the power itself because all this is coming from the power requirement. So the government has published a lower bound and upper bound demand. What they are telling us is that from today to 2040, the demand could be double, in terms of electricity. So even if gas share is 40% of that, that's almost double what is the gas demand for power sector that we are seeing today. So those are the context that I can give, yes.

Okay. Okay. Great. Yes. So maybe just a follow-up to NEDA once you come back to the number. Of course, I think the NEDA demand has also grown, I guess, suppose that's just more power supply. So also with that also, maybe what's the expectations? Do you expect more NEDA contribution coming in this year as well?

God willing. I mean, it worked -- NEDA always worked on marginal costs into the grid. So if our gas -- the gas price then you can expect a higher injection into the grid because the -- our cost will be lower compared to the marginal price that the grid is setting. So it work on that dynamics. And we mentioned just now, we expect the gas price to be weakening. So let's hope that it will provide us with that opportunity.

The contribution from NEDA for the year is MYR 24 million.

Yes. Okay. Do you have the number for last year as well, for FY '23?

If not mistaken, lower, because of low volume. The gas price was higher at that time. So we couldn't beat the system marginal price because of the input cost is higher.

Next on the line, we have Dharmini.

I just have a follow-up question on the ITA tax allowance that was recognized during the quarter. What was the quantum? That's my first question. And the second one is just a clarification on the associates and JVs contribution. I think you mentioned earlier on Q-on-Q, it was lower due to a refinancing exercise. Was that conducted in the fourth quarter? Or was it in the third quarter where you incurred some premium?

I'll answer the second question first. It was incurred in the fourth quarter.

Okay. Got it. And is there a rough estimate as to what the premium was? Is the estimate of MYR 15 million to MYR 20 million about right?

You mean premium on?

The premium that you incurred because that dragged the overall profits for the associates, right?

I think the buyback is close to 50 basis points of premium that we have to incur, yes.

So on an absolute basis, what was the additional cost?

Slightly over than -- including the operational cost that we have to incur for the corporate exercise, is slightly more than MYR 10 million -- more than MYR 10 million -- the premium plus the corporate expenditure that we incur for the SSIs. On the ITA, the month that we recognized in this year's tax expenditure is close to MYR 40 million.

MYR 40 million, and this was all recognized in the fourth quarter, right?

Yes.

Is there a follow-up question from Daniel?

Yes, there are follow-up questions. On the -- okay, I'm coming back on the JV associate contribution. You mentioned that MYR 15 million is a healthy level kind of thing. But when I look into your breakdown, you own about 20% of Gas Malaysia, so you recognize 20% of their profit. They are easily making MYR 400-odd million per annum, means you're going to recognize MYR 80 million per annum from that alone. So are you saying that the other JVs are loss making?

We don't own 30%.

20%?

No, no, we only own only 14%. Gas Malaysia is only 14%.

So it's under investment level.

Yes.