Good day and thank you for standing by. Welcome to PETRONAS Gas Berhad Analyst Briefing for quarter ended 30th of June 2022. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, you will need to press star one one on your telephone.
You may also submit your questions via the webcast. Please be advised that today's conference is being recorded. I'll now like to hand the call over to your first speaker today, Izan Hajar Ishak. Thank you. Please go ahead.
Thank you, Desmond. Asalamu alaikum, and good evening, everyone. Thank you for joining our session today for PETRONAS Gas Berhad Analyst Briefing for quarter ended 30th June 2022. I'm Izan from Investor Relations. With us from PGB, we have Encik Abdul Aziz Othman, Managing Director and CEO, Encik Shahrul Azham Sukaiman, CFO, and Encik Hisham Maaulot, Head of Business Development and Commercial.
We will start the briefing with highlights, business updates, financial performance, and to be followed by Q&A. For reference, our financial results are available at both Bursa Malaysia and PGB website. The presentation material is also available at our website and at the webcast host platform. Without further ado, I'll hand over to Encik Aziz for the highlights. Encik Aziz.
Thank you, Izan. Assalamu alaikum, and good evening, everyone. Again, thank you for joining us today. As always, let us start with the key highlights for the first six months performance for this year, 2022. As you can see, we continue to deliver steady revenue from all business segments, obviously on the back of our continued world-class operational performance.
Of course, while our revenues are underpinned by long-term contracts, it is essential to highlight that we take every possible measure to ensure our facilities are running safely, reliably and efficiently. Again, the contract is about us collecting fees based on facility availability, so running facilities safely, reliably, and efficiently is very important.
Of course, in addition to ensuring product delivery reliability, the excellent performance has resulted in higher incentive achieved by our Gas Processing business. Nevertheless, our financial performance, as you can see later, is starting to see the impact of external factors really have impact on our fuel gas price as well as foreign exchange movement. The revenue, the high revenue gain, is always because of that coupled with high cost.
Nevertheless, some of our efforts to mitigate the high cost is actively being pursued, including improving the commercial terms in our renewed utilities contracts. I'm pleased to share that as a result of these efforts, our quarter-over-quarter margin for our utility segment has actually improved when it comes to profit margin.
We may have recorded a lower Profit After Tax year-on-year, yet we still have a healthy cash position. Because of that, the board today has approved an interim dividend of MYR 0.16 per share, which is the same as quarter one this year. Last but not least, we remain focused on ensuring our growth projects are progressing as planned.
In June this year, we awarded an EPCC contract for an extension of the lateral pipeline and lifting station to a customer in Banting, Selangor. We expect this project to be commissioned in August 2023. Fast track indeed. Now, as I've said in the last quarter, Malaysia Reference Price is always used as benchmark for PGB's fuel price.
You all recall we pay for the gas that we consume as fuel in our operations. The MRP, the short form for Malaysian Reference Price, moves in tandem with Brent. The strong correlation has resulted in MRP and our fuel gas costs to increase rather steeply in the recent quarters as Brent rose from $69 per barrel in quarter 2 2021 to $112 per barrel in quarter 2 2022.
Almost double. At the same time, ringgit continued to depreciate against US dollar, so that's further affecting our bottom line. Despite the higher prices and unfavorable Forex, we remain committed to deliver sales gas to our customers, and this is backed by strong demand in the country as Malaysia gradually recovers from the disruption caused by COVID-19.
I can go to the next slide, looking at financials. Comparing the first half of 2022 with the same period in 2021, PGB revenue stood at MYR 2.96 billion, higher by 9%, mainly contributed by higher revenue from utilities segment. Utilities, of course, higher secured higher product prices. This is in line with the aforementioned higher fuel gas price.
Coupled with higher electricity sales volume, including those under NEDA, which now almost one year into the contract, and the highest contribution from steam sales offtake due to impact of customers' plant turnaround activities. Group gross profit declined to MYR 1.2 billion. Again, this is due to tighter margin recorded by utility segment, brought about by those higher fuel gas costs.
We can't transfer all the fuel gas costs because the electricity is sold based on TNB tariff. The profit after tax because of that was lower at MYR 853 million, coming from the lower gross profit and of course, unfavorable Forex.
Our EBITDA was correspondingly lower at MYR 1.63 billion. You can see that there is a 6% decrease in EBITDA in line with the decrease of gross profit, less the impact of unrealized Forex loss, a non-cash item which impacted the profit after tax. Earnings per share was lower by 16% as compared to half one 2021, reflecting a lower profit attributable to shareholders of the company.
Dividend per share for the quarter was MYR 0.16, making it for the year total of MYR 0.32, similar to the same period as last year. Of course, as always, details of our financial comment will be presented by Shahrul after this. Moving on, business update starting with gas processing.
The operation at our gas processing continue to operate at a world-class level. The Overall Equipment Effectiveness, OEE, remain high for both C1 methane and C2 ethane. We achieve 100% reliability, which demonstrate our commitment to the customers as well as our world-class performance in as far as reliability is concerned. The high level of efficiency also has resulted in MYR 32 million of performance incentive from our shipper, which we achieved in the quarter.
On updates related to the business, one of our operational initiatives, the off-gas rerouting projects from Terengganu Crude Oil Terminal or TCOT to our gas processing Kerteh complex is progressing as per the schedule. Moving on to gas transportation. The pipeline network reliability for the quarter, again, sustained at close to 100%, and we achieved an average sales gas delivery close to 2.2 billion standard cubic feet per day, which is a 10% increase from second quarter of 2021.
On segment updates, I'm pleased to share that we have completed the Southern PGU debottlenecking project in May, 2 months ahead of schedule. All other projects, such as the lateral pipeline to Pulau Indah and the new gas compressor station in Kluang are progressing well. In June, again, demonstrating our effort to
On the growth side, we awarded an EPCC contract to construct an approximately 10-kilometer lateral pipeline and metering station to supply natural gas to a paper making plant located in Banting Industrial City, Banting, Selangor. Total CapEx just above MYR 90 million. We expect this project to complete in August 2023.
Going to regasification segment. Both RGT Sungai Udang and RGT Pengerang sustain strong OEE performance at 100% during the quarter. RGT Sungai Udang received 4 cargos, while RGT Pengerang received 19 cargos, making a total of 23 cargos for the first half of the year. Our ancillary services, especially the LNG truck loading service, is doing well, which you can see the truck moving across Peninsular Malaysia to serve our clients.
Our LNG truck loading service has achieved 219 deliveries in the quarter. Year to date, we recorded double the amount as compared to same six-month duration last year. 678 versus about 300 last year.
For this segment, we have announced an expression of interest for potential third storage tank at RGTP. Right now, we are on track for final investment decision by end of the year. Of course, that will depend on the bid on the CapEx that we are currently sourcing from potential EPCC contractor. Utilities. Overall, we continue to fulfill customers' demand. 100% product delivery reliability for electricity and steam. Of course, this is due to higher plant availability and reliability.
Comparing quarter 2 2022 against preceding quarter 1 2022, we saw higher sales volume for all products in line with higher customer demand. Comparing quarter 2 2022 against quarter 2 2021, the same quarters as last year, there was higher customer offtake, leading to higher volume of electricity and steam delivered.
While lower plant availability, for industrial gases has resulted in slightly lower industrial gases volume offtake. Again, last quarter we mentioned this, we have since renewed six more contracts this year, of which the contract has improved pricing structure to allow pass through cost. The higher volume coupled with better commercial term has resulted in improved margin for the segment.
We wish we can transfer all but so far, only a portion of it we can transfer to the customer and these are the things that we are looking on how to improve. At the same time, we also mentioned about the project to build the connection to our customer, PCCOM. The project is ongoing as per schedule.
For projects, again, while we are striving for operational excellence, we are also pursuing long-term sustainability through project delivery excellence and investment decision for new growth and sustainable projects. Since 2021, we have been continuously investing in projects to enhance revenue contribution for GPU business and also adding up new investment to the regulated asset base for GTR business.
So far, we have sanctioned approximately MYR 1.4 billion worth of projects since 2021, including the recently completed Southern PGU debottlenecking projects. More to come, of course, as we finalize projects in our funnel with estimates that are worth more than the current approved amount.
Some of the projects, as one that we mentioned last quarter was the third LNG storage tank at Pengerang, the power opportunities in Sabah and an integrated utility solution in some of the industrial parks. Ladies and gentlemen, that's all for business update. We move next to financial segment with Shahrul. Over to you, Shahrul.
Thank you, Encik Aziz. Good evening, everyone. Shahrul here, and I shall take you through the financial. We will start with segmental performance with gas processing. In quarter two 2022, the business maintained its world-class operational performance, recording 100% reliability with sustained revenues and higher gross profit, amid higher operating costs.
Against preceding quarter one, revenue for the quarter sustained at similar level with an increase of 1%. Gross profit was comparable at MYR 233 million. Against corresponding quarter, segment revenue increased by 2% following high internal gas consumption incentive achieved, explained by Encik Aziz earlier. Segment results increased by 10% in tandem with higher revenue, coupled with lower operating costs.
For results, again, corresponding period, first half last year, revenue improved by 2% to MYR 871 million on higher internal gas consumption incentive achieved. Segment results also improved to MYR 465 million in tandem with higher revenue.
Next, to gas transportation. Comparing against our preceding Q1 2022, revenue was comparable with a slight increase by 1% at MYR 291 million, given the high number of operating days in Q2 this year.
Gross profit declined by 5% at MYR 175 million, mainly due to high operating costs. Against corresponding quarter, segment revenue was comparable. Segment gross profit, however, decreased by 2% due to high operating costs, mainly internal gas consumption costs in tandem with higher fuel gas price.
Against our corresponding period first half 2021, segment revenue was comparable at MYR 579 million, while segment results decreased by 5% due to high operating costs, similar reason as the quarter, which is the higher fuel gas price.
Right. Moving on to regasification. Against preceding quarter, revenue was 3% higher at MYR 364 million due to higher reloading fee at RGT Sungai Udang compared to preceding quarter. Segment result was 5% higher at MYR 183 million on the back of higher revenue.
Against corresponding quarter, segment revenue was comparable. Segment gross profit increased by 32% as a result of lower operating costs, largely attributable to lower internal gas consumption costs.
The IGC cost was higher in corresponding quarter due to some adjustment which include our prior year charges. If you were to exclude the prior year charges, IGC in quarter two last year would be lower than IGC in quarter two this year. For the half year result, again, corresponding period, segment revenue was slightly lower at MYR 698 million.
Gross profit, however, improved by 7% driven by low operating costs, largely attributable to lower IGC costs. Next to utilities business segment. Comparing this quarter against preceding quarter one, revenue rose by 8% at MYR 422 million, in line with higher product prices.
Segment gross profit rose by 50% to MYR 32 million, in line with higher margin as a result of better commercial terms from renewed contracts, as mentioned by Aziz earlier. Against corresponding quarter, segment revenue rose by 36%, mainly due to higher product prices, coupled with higher contribution from electricity sales volume.
Product prices were higher in line with higher fuel gas price, which is based on reference market price. While electricity sales volume increased following commencement of electricity supply to grid under the NEDA from August 31 onwards.
Segment results, however, declined by 54%, largely attributable to the tighter margin as a result of higher fuel gas costs. First half of last year, segment revenue grew by 39% to MYR 814 million on higher product prices and also highest electricity sales volume.
Segment gross profit nevertheless declined attributable to tighter margin as a result of higher fuel gas costs. Next, let's move to PGB group level. Against preceding quarter one 2022, group revenue was higher by 3%, with all segments recording higher revenue, especially utilities and regasification segments.
Utilities revenue increased due to favorable impact from contract renewal coupled with higher customer demand. While regas segment revenue was higher in tandem with higher number of days in the quarter, coupled with higher LNG reloading fee recorded.
Our gross profit saw an increase of 2% at MYR 623 million, with utility segment recording improved contribution on the back of higher revenue. Profit for the quarter decreased by 5% due to impact of unfavorable foreign exchange movement, partially negated by the higher gross profit, as mentioned earlier.
Against corresponding quarter, group revenue increased by 9%, mainly contributed by higher revenue from utility segment. Utilities revenue improved as a result of higher product prices and higher electricity sales volume recorded. Gross profit increased by 4% with regasification and gas processing segments recording lower operating costs.
This is partly negated by lower contribution from utility segment on the back of tighter margin following higher fuel gas price. However, profit for the quarter decreased by 10%, mainly due to unfavorable Forex movement.
Against same period, first half of last year, group revenue increased by 9% to MYR 2.96 billion, mainly driven by higher revenue from utility segment. Gross profit was nonetheless lower by 6% on the back of tighter utilities margin following higher fuel gas price.
The PAT declined by 15% in tandem with lower gross profit, coupled with impact of unfavorable foreign exchange movement, as well as higher effective tax rate following the imposition of Prosperity Tax. Moving on to dividend.
The board has approved the second interim dividend of MYR 0.16 per share, amounting to MYR 316.6 million, which is payable on 23 September 2022. This interim dividend demonstrates our commitment to ensure sustained level of return to shareholders despite the ongoing economic conditions. With that, I end the financial section. I now pass the line over to Aziz to share on the company update.
Thank you, Shahrul. Ladies and gentlemen, again, as always, we still have half a year to go, and these are the focus for the second half of 2022. As I mentioned in the last analyst briefing, we are now in the post period of our proposal submission to ST, which we have submitted in quarter one, 2022.
There have been several follow-up sessions for us to clarify, discuss the assumption and numbers in detail. We expect the discussion to conclude soon and then the RP tariff can be finalized. Of which, if approved, we should expect to receive Suruhanjaya Tenaga notification letter sometime in quarter four, 2022 for implementation of the new RP2 tariff by January 2023.
Also, update on our current growth pursuit and potentially some other new projects that would have reached a final investment decision, hopefully in quarter four this year. As mentioned earlier, we have a selection of attractive projects in the pipeline and we are progressing with the development of this project, which we anticipate to continue to contribute to return of PGB.
Nevertheless, in as far as the current business, looking ahead, as I mentioned in the outlook, industry outlook just now, we anticipate a continued unfavorable external factor. This will have impact from the higher fuel gas price and Forex, which we believe will affect our financial.
We have already working on several efforts to mitigate these factors, including the one that I mentioned, improving commercial term in our UT contract. Of course, launching initiative to reduce Forex exposure besides few margin improvement initiative at operational level. We hope to close 2022 on a positive note with all those efforts that we are putting in the next six months. That's all for now. Thank you very much. Let's move to Q&A. Thank you.
Thank you, management. As a reminder, to ask question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Once again, if you would like to ask questions on the phone, please press star one one.
As a reminder, if you'd like to ask question, please press star one one. We have our first questions from the phone line of Anshu Singhi from JP Morgan. Please proceed with your question.
Hi. Good evening. I have a couple of questions. Can you hear me?
Yes. Yeah.
It's Anshu?
Please, Anshu.
Moving on. I have a couple of questions, starting with just for my clarification. I wanted to know if there's a relationship between the IGC and the MRP.
Is that your only question, Anshu?
No. I have a couple more questions. The other questions are, can you provide some guidance for your CapEx, outstanding CapEx for this year and then for FY 2023, and also the potential CapEx for the third LNG storage tank? Could you also provide some insight if there are any more utility contracts left to be revised for the rest for this year, or are you planning to do any more revisions next year? What percentage of the total utility contracts do not allow pass through for teams? Yeah, that'd be all.
The first question, the relationship between IGC and MRP. Okay. The IGC is being consumed at Gas Processing and at Gas Transportation and the regasification. For the IGC at Gas Processing, there's no impact whatsoever on the MRP because we are judged by the volume that we use.
If we use more efficient, we have incentive paid by our shipper, which in the segment update that I mentioned just now. Because of that, we enjoy some incentive in our financial performance. On transmission and regasification, we purchase the gas that we use to compress the gas that we send across the Peninsular Gas Utilization Pipeline, as well as to regas the LNG. We purchase based on MRP, market price.
If MRPs goes up, our cost on IGC will go up for those two segments. That's why you see the impact, as I have highlighted in the presentation. We will be impacted by those higher MRP accordingly. Yeah. CapEx, I'll leave the guidance to Shahrul for year 2022, 2023, but we can't disclose the CapEx for the storage tank as of now. It is an ongoing exercise.
We will announce should we reach FID expected in quarter four this year. The UT contracts, we have actually renewed all except one. Very soon, we're going to renew that one remaining contract. Yeah. Shahrul, guidance on CapEx.
Thank you, Abdul Aziz Othman. For CapEx, I think for the first half of this year, 2022, we spent around MYR 430 million. We anticipate this CapEx spending to catch up in the second half of the year, double the amount that we spent during the first half of the year. That's roughly the guidance for CapEx for this year.
For next year, we're still working on our business plan and activities. Given some of the growth project that we're pursuing, we're looking at figures slightly perhaps higher than what we anticipate by end of the year for next year.
Just be aware, the last two years or so, our CapEx is just slightly above MYR 1 billion.
Yeah.
Those are the amounts that normally we spend, both operational CapEx as well as growth CapEx.
Growth CapEx.
For second half, it's approximately MYR 800 million. Am I right?
Total for the year is just above MYR 1 billion.
Above MYR 1 billion, yeah.
Yeah.
Yeah. Total for the year.
Okay, just above MYR 1 billion. I'm sorry, what was the maintenance CapEx for that? Annual maintenance CapEx.
Maintenance CapEx, roughly around MYR 500 million per year.
500. Just to follow up on the utilities contract, is there any one-off gains being booked or, there's nothing like that?
Nothing like that. The contract is long-term, so we just collect the revenue month by month based on the terms or the price formula in the contract.
Understood. Yeah.
Yeah.
That's all from my end. Thank you so much.
Thank you, Anshul.
Further questions. As a reminder, if you'd like to ask questions on the phone, please press star 11. Thank you. Our next question comes from the line of Daniel Wong from Hong Leong. Please proceed.
Hi. Is that Daniel?
Yeah. Yeah.
Yeah. Okay. Sorry. Okay. I have two questions, sir. First is on the utility contract that you mentioned that you have renewed all except for one. So I would like to check. So for second half of the year, are we expecting a improving contribution from the utility side as compared to your first half, given that all your almost all your contracts has already been renewed?
And then my second question is, what is the impact over the extra cost related to the Prosperity Tax during the second quarter of the year? And then just to check again, just now you mentioned that, say, the CapEx roughly MYR 500 million per annum. Is it maintenance CapEx you are referring to? That's all from me.
Oh.
Sorry.
Sorry, Daniel. I was on mute. Thank you for the question.
No.
For the first question, yes, as I've communicated last quarter, new contract is expected to give better margin and better impact, or better contribution from utility segment. I think you can see from the quarter-to-quarter comparison between quarter one and quarter two this year, you can see different numbers because a lot of it is contributed by those new contracts that just coming in since quarter two. Question three, yes, maintenance. Mainly maintenance CapEx with some even reliability enhancement are all maintenance works.
Yeah.
Those are the CapEx that we are spending. Yeah. Extra cost for the second half. If I understood your question correctly, Daniel, with all the external factors, et cetera, how much it will impact our second half result, obviously I can't say that. You know, the MRP, whatnot, the impact to our IGC, those are the guidance that we can give. Yeah?
Further questions. Our next questions will come through the line of Sean Lim of RHB. Please go ahead.
Hi, guys. Can you hear me?
Yes. Yes.
I have three questions. My first question is out of 6 projects that has been sanctioned since 2021, right, is it possible to just give a brief guide which are the one that are considered a regulated one and which are so-called like non-regulated? And if these are regulated projects, have all these project has been tabulated in the RP1?
That's my first question. Second question is in terms of your maintenance costs or maintenance activities in your first half, now if you were to compare, you know, what is it gonna be like for the second half?
Are we expecting a higher maintenance cost that could result in higher OPEX? Or it should be a lower maintenance activities and hence lower OPEX for second half? My third question is, are you able to remind me again on why PETRONAS Gas is a loser of a stronger dollar performance? That's my three questions.
Okay. Thank you, Sean. For the projects, yes, we've sanctioned six projects. Two are at the gas processing segment, which are non-regulated. Four are at gas transportation, which are regulated. Some are.
Question 3.
Included in RP1, some will be included in RP2. Yeah. Question three first, why PGB lose out to stronger dollar trend, is it? We do have a portion of our cost at the regas, the regasification business where we pay in U.S. dollar. Because of that, whenever U.S. dollar strengthen-
Yeah
... we have to fork out more ringgit. That's where we it impact us from the financial perspective. Maintenance cost, what was the specific question?
Yeah.
Can you repeat on question two, Sean?
Hmm?
Sorry about that.
Okay. Question two is regarding the overall maintenance costs. You know, how is the maintenance cost going to be like in the second half of this year compared to first half?
Slightly higher because normally there are more activities in second half. I think you know our maintenance cost year in, year out. Of course 2020 and 2021, because of COVID, we spend less. You can expect this year to be slightly higher because we start to have more window for our maintenance.
Okay. Thanks.
Thank you.
That's all for me.
The questions. We have a follow-up question from Daniel Wong. Please proceed.
Hi. Actually, I think just second on the question. I just wanted to know what the impact of the Prosperity Tax during the quarter itself. Then my follow-up question is that, from my understanding previously, any cost that you guys incur for the gas transmission and liquefaction, although you guys pay based on MRP, all these costs are specifically claimable and able to pass through to PETRONAS or to the end user eventually. Isn't it true?
Okay, thank you. Take the last one first. The gas that we use are passed through as part of the regulated regime. Yeah.
Yeah.
What we have given is based on certain number by.
RP1.
As determined in RP1. Of course, we are comparing our FX debt which we should use. Either we use more or less, but every year we come in with a certain budget. When you compare with the budget, sometimes the price is higher than budgeted compared to your budget. It's all passed through under the tariff. Impact of Prosperity Tax.
Okay. For Prosperity Tax, I think the impact is only for the PGB business excluding the two regas companies because they've got tax incentives available. For PGB company, for the first half of the year, we've seen a higher impact on our total tax expense at around slightly above 20% of total tax expense that we incurred for the first half of the year is the impact of our Prosperity Tax for the first half of the year.
You mean the extra 20% of the. The tax is increased by extra 20% due to this Prosperity Tax?
Yeah. The impact of the Prosperity Tax is around 20% of the total tax expense that we incurred for first half of the year.
I see. Okay. Sure. Thank you.
Questions. There are no more questions from the phone line. I would like to hand the call back to the management. Please continue.
Thanks, Desmond. One question from the webcast, from Su Ting of CIMB. For the stronger second quarter utilities performance, is it sustainable, moving forward for second half of the year?
If you go on the new contract, it should be sustainable. Again, utility is where you pay for the gas that you use. If it get higher, you can pass some of it to other than non-electricity, other products other than electricity. You will see some impact. Still profitable, but you will see some impact if the gas price goes higher and higher. Yeah.
Thank you, Aziz. That is the last question from the web. I think, that's all questions we have for today. Thank you, everyone, for dialing in. See you next quarter.
Thank you.
Thank you for participating. Your line is connected.