PETRONAS Gas Berhad (PETGAS) Earnings Call Transcript & Summary

And good day, everyone. Welcome to PETRONAS Gas Berhad's Analyst Briefing for the second quarter ended 30th June 2025. Thank you for joining today's session organized via the Microsoft Teams platform. I'm Suri, Head of Investor Relations, PGB, and I have with me Abdul Aziz Othman, Managing Director and CEO of PETRONAS Gas Berhad and Shahrul Azham Sukaiman, Chief Financial Officer. The PETRONAS Gas Berhad's analyst briefing for the second quarter of financial year 2025 is divided into 4 segments. The first segment, Aziz will present the key highlights for PETRONAS Gas Berhad for the first 6 months. Next, in the second segment, the business updates and financial performance will be shared by Shahrul Azham. This will be followed by the third segment where Mr. Aziz 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 websites. To continue with the briefing, I call upon Mr. Aziz to share his presentation. Aziz?

Thank you, Suri. Warm welcome, and good afternoon, ladies and gentlemen. Thank you for joining us for PETRONAS Gas Berhad Q2 2025 performance results. I would like to first update you on the fire incident involving our asset in Putra Heights. Since the incident in April, PGB has been closely collaborating with the regulatory authorities, gas shippers and distributors to minimize the impact of the incident in the affected areas. We move firstly not only to address the operational aspect and gas supply services, but also to stand alongside the people and communities affected, and we do so with transparency and accountability. On that regard, we fully recognize the public concerns surrounding the safety of the pipeline system, especially with the continuity of gas flow through the network. We have initiated a 2-phase repair process on the damaged pipeline. Under Phase 1, we focus on recovery activities, which resulted in the DOSH approved gas in for the temporary Putra Heights pipeline on 1st July. And this has restored regular gas supply to the Peninsula gas utilization pipeline, the PGU. Phase 2, which we are now in work, we will focus on permanent replacement of the gas pipeline. This is expected to be completed in the third quarter of 2026. While the permanent repair works are underway, we have engaged with our internal and external stakeholders to reinforce the safety and, of course, the integrity of our PGU. Our pipeline system is designed with multiple layers of safety and resilience, underpinned by over 3 decades of engineering and operational experience. We will be working continuously to ensure secure and reliable gas delivery homes, industries and the nation power sector. So having said that, we now will be moving on to the key highlights that shape our first half financial and business performance. Ladies and gentlemen, I'll begin with the factors that influence PGB business operating environment. Similar to what we have seen in quarter 1 2025, PGB continues to be impacted by the key developments and the continuing high-cost business environment. In quarter 2 2025, the MRP dropped to MYR 39.05 per MMBtu and is expected to rise slightly to MYR 39.24 in quarter 3, and this is in line with Brent trends. Although MRP marked a slight reduction quarter-on-quarter, we are anticipating it to remain elevated in the coming quarters. Meanwhile, the service producer price index rose to MYR 116.9, indicating elevated business costs. Although there's no direct impact from the recent Trump tariff yet, we will work -- we will closely monitor the situation. In quarter 2, the ringgit continued to strengthen at 4.31 against the USD. At this stage, ForEx fluctuation impact on our projects remain minimal. Our team continues to monitor the development in ForEx market and is well prepared with mitigation measures to manage any situation. So amidst the elevated cost of doing business, fluctuating commodity prices and ForEx, conditions impacting business operation, PGB continued to maintain a healthy performance throughout the first 6 months of financial year 2025. Tracking our similar achievement in the first quarter, our success in delivering healthy performance anchored on our consistent operational performance across all business segments. Post Putra Heights incident, there were areas affected by gas supply. But as a result of collaboration with key stakeholders, the impact was minimized and gas supply fully restored on 1st July 2025. Prudent cost management, risk monitoring and management have led to a healthy first half of 2025. Having said that, comparing to first half of 2024. PGB group revenue stood at MYR 3.1849 billion, a decrease of 2.5% or MYR 82 million, and this is mainly attributable to lower revenue from Utilities segment, in line with the lower product prices and Gas Transportation segment, following a downward tariff adjustment arising from sharing factor of prior year's lower internal gas consumption. Gross profit declined by 4.4% or MYR 53.2 million, and this is due to tighter margin recorded at Gas Transportation segment. And as mentioned, in line with lower revenue, coupled with costs incurred for the gas supply restoration works following the Putra Heights incident. This was cushioned by lower fuel gas costs in Utilities segment in tandem with lower fuel gas price. PBT marginally decreased by 0.4% or MYR 4.9 million, reflecting lower gross profit. Impact was negated by favorable foreign exchange movement and higher share of profit from JV companies and also mainly to higher repair and maintenance incurred in the corresponding year. Profit for the period rose by 0.9% or MYR 8.4 million, following lower tax expense from lower profit and this excluding the joint venture company's share of profit. EBITDA and EPS were comparable at MYR 1.6944 billion and MYR 0.4644, respectively. There is a slight decrease in profit attributable to shareholders of the company. Board of Directors has approved a second interim dividend of MYR 0.16 per ordinary share, and this is amounting to MYR 316.6 million in respect of financial year ending 31st December 2025. On the business update for quarter 2 2025, we are continuously expanding our asset base that align with our growth strategy. In May, we reached final investment decision in fiber optic infrastructure project as part of ongoing effort to maximize our existing asset. Our wholly owned subsidiary, PG LinkaranFibre Sdn. Berhad commissioned the construction of fiber optic along PGB's back end right of way in July. We also received the network facility provider and network service provider licenses from Malaysian Communication and Multimedia Commission. And this marked a pivotal step in the company's strategic growth, enabling the development of a secured and scalable fiber optic backhaul infrastructure to support both internal operational requirements and strategic ventures into new business. We entered into shareholders' agreement with Sabah Electricity Sdn Bhd and Sabah Energy Corporation Sdn Bhd to develop a new power plant with a capacity of 120 megawatts in [indiscernible], which we achieved FID on 13 May of this year. This project aligns with our strategy to expand our presence in the energy sector and contribute to sustainable energy development in Malaysia. Ladies and gentlemen, now we have 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, Abdul Aziz. Good day, everyone. I will take you through the individual business segment financial performance for quarter 2 2025 with the Gas Processing segment. For this quarter, the Gas Processing segment has maximized performance-based incentive and recorded 100% overall equipment effectiveness or OEE, sustaining plant reliability with high recoveries as well as lower plant slowdown with 0 interruption to customers. Against the corresponding quarter, quarter 2 2024, segment revenue fell by 1.2% due to lower IGC incentive from reduced volume of savings, following the statutory plant turnaround. However, gross profit increased by 1.4%, thanks to lower operating expenditure. Against preceding quarter, quarter 1 2025, segment revenue slipped 0.2% from lower IGC saving following the statutory plant turnaround activities that were carried out during the quarter, while gross profit fell by 3.4% due to high operating expenditure. Against corresponding period first half of 2024, gross profit increased by 3.7% or MYR 15.2 million in line with lower operating expenditure. Moving on to the next business segment. As mentioned by Aziz earlier, the group's pipeline network have been reliable during the quarter despite the Putra Heights fire incident on the 1st of April 2025, signifying our commitment in ensuring uninterrupted gas supply. We have worked continuously to restore the pipeline services in the affected areas and have achieved gas in for the temporary bypass line on the 1st of July 2025. And as mentioned earlier, the permanent pipeline replacement work is currently progressing as planned. Gross profit for the quarter and year-to-date was lower compared to the comparative periods due to one-off costs from temporary repair works at Putra Heights. Excluding this event, performance remained comparable and results are expected to normalize going forward. Having said that, against the corresponding quarter, quarter 2 2024, revenue dropped 4.3% or MYR 12.5 million due to tariff adjustment under IBI framework, linked to the lower internal gas consumption in the prior year, while gross profit fell by 23.4% from costs related to gas supply restoration after the April incident. Against the preceding quarter, quarter 1 2025, gross profit fell by 16.3% or MYR 23.2 million, while against corresponding period first half of 2024, gross profit fell by 17.8% or MYR 56.6 million. So this tighter revenue because of the revenue adjustment as well as the cost incurred for the temporary bypass repair in July 2025. Moving on to the next business segment. Our group's LNG Regasification in Sungai Udang, Melaka as well as Pengerang, Johor sustained their strong reliability performance during the quarter. Our Regasification terminal ensures strong equipment and plant reliability by following preventive maintenance programs, analyzing failure trends and conducting root cause analysis on critical incidents. Against the corresponding quarter, quarter 2 2024, revenue was marginally lower by 0.2% following downward tariff adjustment. Gross profit declined by 3.1% or MYR 4.9 million, mainly due to higher operating expenditure coming from the planned compressor maintenance, coupled with marine loading arms parts purchased during the quarter. Against preceding quarter, quarter 1 2025, gross profit improved by 5.8% or MYR 8.4 million due to lower operating expenditure as a result of lower repair and maintenance activities. Against corresponding period of first half of 2024, segment revenue declined marginally by 0.7% following downward tariff adjustment, while gross profit reduced by 5.4% or MYR 16.8 million due to higher operating expenditure mainly related to maintenance activities. Moving on to the Utilities segment. Our Utilities plant registered close to 100% product delivery reliability for all products during the quarter or corresponding quarter comparison to quarter 2 2024, revenue reduced by 7.1% or MYR 38.7 million, mainly due to lower price of steam and industrial gas products in line with downward fuel gas price under the Malaysian reference price or MRP. The average fuel gas price was lower by about 10% at MYR 44.42 per MMBtu versus last year of MYR 49.24 per MMBtu. However, segment result rose by 14.3% or MYR 10.7 million, primarily due to favorable impact of the lower fuel gas costs. Against preceding quarter, quarter 1 2025, segment result rose by 22.7% or MYR 15.8 million, again, following the favorable impact of lower fuel gas price following the downward movement of Malaysian reference price MRP. Against corresponding period first half of 2024, gross profit rose by 3.3% or MYR 5 million due to the favorable impact of lower fuel gas costs in the MRP price movement, coupled with lower operating expenses. Moving on to the group's performance. This quarter our group performance was driven by our gas processing, we achieved 100% OEE with improved energy efficiency and no supply disruptions. Gas Transportation remain reliable with response to the Putra Heights incident, ensuring continued services to our customer. Regasification terminals sustained strong reliability through proactive maintenance, while Utilities performance was steady with higher electricity exports offsetting lower industrial gas output due to unplanned shutdown in quarter 1. Having said that, against the corresponding quarter, quarter 2 2024, group revenue stood at MYR 1.59 billion, a decrease of 3.5% or MYR 57.7 million, mainly attributable to lower revenue from Utilities segment in line with lower product prices as well as due to lower Gas Transportation segment revenue following downward tariff adjustment from sharing factor of prior year's lower internal gas consumption. Gross profit declined by 4.6% due to tighter margins recorded at Gas Transportation segment in line with lower revenue as well as costs incurred for the gas supply restoration works at Putra Heights. This, however, was cushioned by the lower fuel gas cost in Utilities segment in line with the lower fuel gas price. Profit for the quarter decreased by 2.3% or MYR 11.4 million, in line with lower PBT. Against preceding quarter, quarter 1 2024 -- 2025, revenue marginally decreased by 0.3% due to lower revenue from Utilities segment in line with lower product prices. Gross profit decreased marginally by 1.1% following lower revenue, coupled with costs incurred for the gas supply restoration works following Putra Heights fire incident, and this was cushioned by the favorable impact of fuel gas costs. And profit for the quarter was lower by 2.5% or MYR 12.5 million in tandem with the lower PBT. For the 6-month period compared to 6 months last year, group revenue stood at MYR 3.184 billion, decrease of 2.5% mainly attributable to lower revenue from Utilities in line with the lower product prices as well as the Gas Transportation segment following downward tariff adjustment from IGC sharing factor for prior year's consumption. Gross profit declined by 4.4% or MYR 53.2 million as a result of tighter margins recorded at GT segment in line with lower revenue and cost incurred for Putra Heights incident, but this was cushioned by the lower fuel gas cost for Utilities segment in line with the lower MRP. Hence, profit for the period. However, profit for the period, despite the lower GP, profit for the period rose by 0.9% or MYR 8.4 million following lower tax expense from lower profit, excluding joint ventures companies and share of profit. Moving on to the balance sheet. Our total assets was higher by 0.5% at MYR 18.9 billion with higher PPE, but negative with lower cash balances and tax recoverable. Liabilities decreased marginally by 3% following higher settlement of trade and other payables, coupled with impact of favorable ForEx movement for our lease liabilities. We sustained a strong dividend, leveraging on our robust earnings and efficient capital management. The Board has approved second interim dividend of MYR 0.16 per share per ordinary share payable on 22nd of September and amounting to MYR 316.6 million in respect of the financial year ending 31st December 2025. And this demonstrates our commitment to ensure a sustained level of return to shareholders despite the business operating conditions. We're still able to provide healthy level of payout more than the committed dividend policy. This is all from me. I will now pass the line over to Aziz to share on our company outlook.

Thank you, Shahrul. On the outlook, as committed in the previous quarter, PGB will continue pursuing market opportunities aligned with our growth strategy while reinforcing our business structure and stakeholders' engagement. Nevertheless, safety, operational excellence and disciplined project delivery remain priorities. This enhanced protocol as informed by the recent lessons to safeguard trust and integrity. In supporting Malaysia energy transition, we are progressing infrastructure inspection expansion to meet rising national demand, strengthen our energy portfolio and advance low carbon goals. Beyond core gas infrastructure, we are unlocking value from existing assets through targeted diversification to broaden revenue stream and deliver sustainable shareholders' return. While market conditions offer promising opportunities, we remain mindful of potential risks and are approaching each initiative with prudence and discipline to ensure our ambitions are both achievable and sustainable. One of the internal risk we are facing is the implementation of the expanded SST effective 1st July 2025, which may result in higher projects and operational costs potentially affecting project returns. Project teams are assessing the impact on a case-by-case basis. This is hopefully to enable timely interventions, including commercial negotiation with vendors and customers. The new electricity tariff structure, which was announced by the government to be effective on 1st July 2025, along with the revised fuel cost adjustments and off-peak reforms may lead to lower utilities revenue and higher operating costs. For this risk, we are developing strategies to minimize interruption and optimize electricity consumption to mitigate the impact. On the external risk, the ongoing geopolitical tensions, including tariffs announced by the U.S., arm conflict between India and Pakistan and the recent military strike by Israel on Iranian side have contributed to market volatility and potential supply chain risk. Our current exposure remain minimal, especially following recent ceasefire developments with close monitoring of long lead item deliveries for projects, project cost implications and foreign exchange movement. Mitigation measures include supplier diversification, local sourcing and hedging strategies. On the opportunity side, recently announced [indiscernible] and the National Energy Transition road map outlined ambitious plans to accelerate Malaysia energy transition, strengthen energy security and promote low-carbon technologies. Several of these initiatives directly align with PGB core capabilities and long-term growth strategy, positioning us to capture value from emerging opportunities in infrastructure expansion, clean energy and decarbonization. Some of the areas that we could step in first, the third Regasification terminal. Government announced development of a third Regasification terminal under the integrated green energy model. PGB as a Malaysia leading regasification operator is well positioned to be a key beneficiary given our proven track record in Sungai Udang and Pengerang. Carbon capture, utilization and storage, CCUS. RMK-13 and NETR prioritized CCUS development, and this is to decarbonize hard to abate industries with PETRONAS leading national efforts. PGB can leverage existing gas transportation and processing infrastructure to support CO2 gathering transport and storage. This would potentially create a new revenue stream while strengthening our role in the Malaysia's low-carbon energy ecosystem. Third, the battery energy storage system, BESS. RMK-13 emphasized large-scale BESS development, and this is to stabilize renewable integration and support national grid upgrades. This provides opportunity for PGB to explore BESS and we foresee potential synergies with PGB's operational expertise in gas infrastructure to provide hybrid energy solutions for our customers. That's all. Thank you, and over to you, Suri.

Thank you, Aziz and Shahrul. We have now come to the question and answer session. [Operator Instructions] I think we see the first hand raised there.

Just a few questions. Let's focus on the fire incident first. I saw that there's a disclosure of MYR 9 million PPE impairment. Is this part of the impairment -- not impairment write-off? Is this part of the write-off regarding the fire incident? And can we expect any more from this?

This is the only question?

I have a few more. So do you want me to finish my questions?

Okay. I'll let Shahrul to take this one first.

Okay. So the close to MYR 9 million write-off that you saw in our Bursa, yes, it is related to the -- there's 2 items there. First, the apartment has been damaged because of the incident. And secondly, in relation to the hydrocarbon loss that we incurred arising from the incident. So in total for both, it's close to MYR 9 million. That is all that we anticipate for -- in relation to this, and we don't anticipate further write-off or impairment in relation to the incident moving forward.

Okay. Okay. Then regarding the temporary repair work cost, can we know how much is it in this quarter? And how much will be incurred for the -- I mean, for the remaining of the financial year?

The repair cost, a significant amount of the temporary repair cost has been included in our quarter 2 numbers. There is a remaining minimal amount that will be incurred in quarter 3. We're looking at the total cost around MYR 20-ish million for the temporary repair.

Okay. So MYR 20 million already incurred or is the following repair?

Correct.

After about 2026, majority has been part of this quarter results.

Okay. Okay. And also regarding SMEs, I noticed that there's no material litigation according to financial release. But is there any third-party liability claims as of now or yes?

We have not received any litigation, yes, for the -- related to Putra Heights, right? Yes. We have not received anything of...

Okay. Okay. Then also the gas transportation, since you are going to carry out the permanent replacement of the gas pipeline, right? The replacement will be part of, I assume the unexpected CapEx, which you will be -- I mean, which will be added to the regulated asset base after this. Am I right?

Can you repeat again? Sorry?

Regarding the permanent replacement of the gas pipeline that you mentioned, Phase 2 by third quarter, this will be part of the unexpected CapEx for the Gas Transportation segment, which will be the regulated asset base?

This is a matter under discussion with ST. And this is CapEx. So I think it will be treated as CapEx going forward, yes.

So -- but then I mean, for your side, you're going to claim it, I mean, you're going to apply as unexpected CapEx so that it can be added into RAB in the upcoming RP, right?

As mentioned, we will discuss with ST and putting as part of RAB is part of the discussion.

Okay. Okay. Okay. Also regarding the fiber optic infrastructure, right, is this part of RAB under Gas Transportation segment or is separate?

It's a separate business by itself. Of course, we are putting the asset under the right way, which is part of regulated asset. So there will be some sort of scheme that we need to compensate the regulated asset. But it's only included in the overall economics.

Okay. Okay. Okay. Yes. I have a few more questions, sorry. There's a shortage of this gas turbine, right, which is happening, I think it is happening globally. So I'm just wondering regarding your not just your 120-megawatt Labuan plant or even other gas plants, right? Are you having any problem getting this gas turbine? Because what I noticed is, what I read in the news is the waiting period is like 3 to 5 years.

So if you mentioned about the project that we have FID, mainly Labuan and one in Kimanis. It was FID with a commitment already secured from the OEM supplier. So we are outside of that concern, yes.

Okay. Then how about the latest tender that -- I mean, I assume PETRONAS Gas entered into for the gas request for proposal by the [indiscernible]. So is there any problem, let's say, to secure this gas turbine?

We'll make the necessary announcement because as you recall, this is a bidding exercise. So we are looking at it. So in due time, we'll make the necessary announcement. Yes.

Yes. But I mean, if let's say, any winners, right, will there be any problem securing the gas turbines or it will be delayed because of all these long waiting time?

I think a prudent bidder wouldn't want to bid without a commitment secured from the OEM. A prudent bidder wouldn't be submitting a bid that is without any firm commitment from OEM.

Understand. Understand. Last question from me. So the [indiscernible] Malaysian plant mentioned specifically that they're going to build the third Regas terminal at Lumut. So I mean, according to news report, right, I think PETRONAS Gas is eyeing for regasification terminal at Lumut. So I'm just wondering, up until now, is there any letters or anything -- any updates regarding a regas terminal? And is there any change in the format? Will it be still regulated asset base for this new regasification terminal if it is built?

I mean, as I mentioned in the presentation, it is an opportunity. And of course, because we have the necessary core competencies, it's something that we should be looking at it. And then I think in as far as the business model, there is already a regulatory regime governing this. So we are -- whatever the scheme that come up will be on the basis of the regulatory regime.

Let's have opportunity for others to post their question. Okay, we have one more...

Let me start by just getting a clarification on the financial impact from the Putra Heights incident. I remember during the last briefing, you mentioned that you see a total impact of MYR 60 million. If you could just break it down of how much of that was recognized in the second quarter?

Shahrul here. So in relation to the financial impact of fire incident, yes, we have announced earlier the estimated impact for 2025 about MYR 60 million. So what we have incurred to date as at quarter 2 is around MYR 23 million.

And this MYR 23 million includes the MYR 9 million write-off or that's excluding that MYR 9 million write-off?

Excluding.

If you were to include the MYR 9 million, it's close to MYR 30 million, yes.

And then the outstanding is around MYR 30 million? Or is that MYR 9 million even excluding that MYR 60 million?

At the moment, our estimates remain at MYR 16 million, but we're looking at some of the contractual matters as well as the further cost that needs to be incurred for the year.

Understood. Then coming on to the temporary gas pipeline. If you could share what is the cost that has been recognized for that temporary gas pipeline? I realize that you might have capitalized that and the capitalization was around MYR 110 million. So how much of that was related to the temporary gas pipeline?

Related to?

The temporary gas pipeline.

In fact, because of the temporary gas pipeline, the estimated useful life is very short. Actually it is shorter than 2 years to what we have done, actually, we actually taken everything to P&L. So the plan is to only capitalize the permanent repair, which will only complete by next year.

Okay. So that makes sense. So is there an impact to your RAB for this year if you have from -- if the permanent pipeline only comes next year, do you see that RAB being reset lower by the end of the year? Or that's not how we should think about it?

No, the RAB work period by period. So for the last 3 years, including this year has been set, right? The coming year, as I think part of the regulation, whatever the January 1st of next year will be formed the new RAB, right? Then whatever the spending that we have, there are a treatment to it, which subsequently will be recovered along the next RP as well as the new -- the new coming RP after the next RP. But that would depend, as I mentioned to Hern just now, we are in discussion with ST on how do we treat this amount, yes.

If I may ask this, is the discussion more about the timing for the recognition? Or is the discussion more about whether to recognize it or not?

Everything.

Okay. Still in the air. Understood. So if you're discussing about the next RP, maybe if you could share any updates on that regarding the time lines or what are some of the aspects you would like to get addressed in this RP?

Well, the next RP, whatever it is, has to be concluded by end of this year because the charges -- the new tariff will have to start on 1st January. I think as mentioned before, we have submitted the package early this year and that discussion is ongoing with ST.

Understood. Understood. Maybe just -- I just want to come back on to Putra Heights incident. Have you received any insurance payments? Or are there any discussions for insurance? Because I see there's a bump in the other income. If it's not that, what is that related to?

As we can answer that question. In relation to Putra Heights incident insurance claims, things are actually currently in progress. We have not received any insurance claim. The one that registered in our other income is related to insurance claim for other assets that we incurred in prior years, not related to Putra Heights incident.