KUALA LUMPUR (March 21): Petronas Gas Bhd (KL:PETGAS) will likely face earnings headwinds in the financial year 2025 (FY2025) as the reduction in transportation and regasification tariffs takes effect, according to analysts.

Even though the tariff adjustment may level the playing field of the domestic gas industry, analysts caution that it could weigh on the company's revenue and profitability in FY2025, according to research reports released on Friday.

"We believe the downward tariff adjustments are primarily due to revenue-cap adjustments, likely driven by higher-than-expected reserved firm capacity in FY2023, along with savings from lower internal gas consumption (IGC) volume," Apex Securities Research said in a research note.

The brokerage has trimmed its FY2025 earnings forecast for the group by 0.7%, although it maintained its projections for FY2026 and FY2027. Despite the short-term impact, Apex noted that the adjustments do not affect the overall regulated return framework in the long run.

In a separate note, MIDF Research acknowledged the potential revenue pressure from lower tariffs but maintained a positive outlook on the company, citing possible higher sales volume driven by more competitive pricing.

"The risks to these lowered tariffs remain the impact on FY2025 revenue, consequently affecting costs in infrastructure and maintenance. This could further include potential adjustments to other expenses, subsequently affecting long-term contracts between Petronas Gas and its long-standing clients," MIDF said.

The research house maintained its “buy” call on the company, with an unchanged target price of RM18.67, projecting that increased demand for gas transportation and regasification could partially offset the revenue decline.

"Given the expertise and experience of Petronas Gas in the field, as well as Petronas's cost control plans, we believe such financial risks could be mitigated," it added.  

Consensus earnings forecasts indicate that Petronas Gas is expected to post a net profit of RM1.90 billion in FY2025 on revenue of RM6.46 billion, which is slightly lower than when it made a revenue of RM6.54 billion for a net profit of RM1.84 billion in FY2024.  

The tariff adjustments, approved under the Regulatory Period 2 framework, will be effective from Jan 1, 2025, to Dec 31, 2025.

The Peninsular Gas Utilisation transportation tariff will be reduced by 4.3% to RM1.049 per gigajoule (GJ) per day, while the high-pressure gas supply tariff to Singapore will see a 5.4% reduction to RM1.609 per GJ per day. Meanwhile, regasification tariffs at Sungai Udang (RGTSU) and Pengerang (RGTP) will see minimal reductions of 0.3% and 0.03%, respectively.

Petronas Gas' shares have so far declined almost 6% this year, tracking the wider weaker market sentiment that put some pressure on the company's share performance. At the time of writing on Friday, shares in the company traded four sen or 0.24% higher at RM16.98, valuing the company at RM33.52 billion.

The counter currently has seven "hold" calls and four "buy" calls from 11 analysts.

Apex views that the counter should stand as a defensive stock in a volatile market, with over 85% of its operating profit derived from stable, regulated segments.

Its 12-month target price stands at RM18.30, implying some 7% potential gain from the last traded price.  

Beyond 2025, analysts believe that Petronas Gas stands to benefit from several structural growth drivers including the expectation to see medium-term earnings growth from the upcoming Regulatory Period 3 framework for its gas transportation and regasification segments starting FY2026.

New contributions from joint ventures, such as the Sipitang and Kimanis power plants, could bolster earnings, Apex said, adding that it noted the management has indicated that RGTSU and RGTP may reach full utilisation within the next one to two years, potentially prompting the development of a new regasification terminal to accommodate rising gas demand.

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Lower tariffs for gas transportation, regasification in 2025, says PetGas