PetGas

The company enjoys steady earnings from the gas processing and transmission agreement (GPTA) it signed with Petronas. But it doe not offer much excitement in terms of growth.

Going forward, things could be different for PetGas and its business model may not longer just constitute the processing and transmission fees it receives under the GPTA. The government’s measures to liberalize the import of gas, as well as the rising demand for gas as fuel, will augur well for the company’s future earnings.

The re-gastification terminal will enable the import of gas by third parties, something currently monopolized by Petronas. With more parties involved in the import of gas, it will mean more users for PetGas’s Peninsular Gas Utilization (PGU) pipeline, which links to about 20 power generation plants, including those IPPs, along the coast.

The first re-gastification terminal in Melaka is ecpectedt o start operations in July 2012, while two more terminals will be constructed in Johor and Dabah.

The commencement of operations at the Melaka terminal will redefine PetGas business model. Expecting the plant to enhance PetGas’ FY2012 and FY2013 net earnings.

Its officials said that the re-gastification plant in Melaka will enhance the companh’s enhance the company’s capability beyond gas processing and transmission of utilities. Revenue will be generated from processing and handling fees, and this addtional reevnue stream will further enhance PetGas’ profitability.

The re-gastification terminal will enable the import of LNG from various sources into Malaysia , and will help to resolve Malaysia ’s acute shortage of gas. With the LNG re-gastification facilities, PetGas and others will be able to import LNG and re-gastify it in Melaka before piping the gas into the PGU pipeline.

Besides Petronas, other companies could also make use of the re-gastification terminal to import gas from the international market. Third parties shippers would be to import LNG, re-gastify it and transport it to the customers in the peninsula Malaysia through the PGU pipeline operated by PetGas.

Indeed the government;s move to liberalize the natural gas market would help fuel PetGas’s earnings growth as the company currently only serves Petronas which is PetGas major shareholders with 60.66% stake.

Given the sentiment and efforts towards gas market liberalization, PetGas recognizes the gas transport business, through the PGU pipeline, as a potential growth area.

In anticipation of the increase in usage of the PGU pipeline, PetGas has developed a club rule called PetGas Network Code, which provides a set of guidelines on, among others, access to PGU, services provided by PetGas and tariff and transport fees.

PetGas will sign on Gas Transport Agreement (GTA) with third parties that want to subscribe to the group’s gas transport servicves. The GTA is standard for all parties, ensuring nin-discriminatory, non preferential treatment.

The group’s assets, especially the PGU pipeline, to grow to cater for additional volume from more re-gastification terminals. Thus, PetGas is indeed a proxy to the rising demand for natural gas.

PetGas’ priority is to expand within Malaysia due to the wider domestic growth parameters attributed to the rising demand for natural gas. This increase in demand for gas requires the company to seek new sources to complement the depleting local supply.

Apart from the gas processing and transmission, PetGas wants to diversify into the power generation business to cultivate future growth. To this end, PetGas has formed a JV company with Yayasan Sabah to develop a 300MW gas power plant in Sabah . PetGas holds a 60% stake. The power plant is expected to be completed and start operating by 2013.

The prospect of higher profitability under the 4th GPTA has fuelled the company’s earnings prospects and on top of that, the group has an earnings catalyst in the commission of the re-gastification terminal and power plant in Sabah .

67% of its revenue are from fixed under agreement with Petronas.