Earnings Call: Q2 2021

Aug 23, 2021

Good day and thank you for standing by. Welcome to the Petronas Gasper Heart Q2 FY 2021 Analyst Briefing. At this time, all participants are in listen only mode. After speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Ms. Izzan Hajar Isha. Please go ahead, ma'am. Thank you, AJ. Sir, welcome and good evening everyone. Thank you for joining our session today for Petronas Guest Perhat's for quarter ended 30th June 2021. I'm Ilan from Investor Relations. Sorry, we had to start 15 minutes later from plan. With us from PTB today, we have Inci Abdul Aziz Osman, Managing Director and CEO one Sharis Varis Noma Isoff, CFO and Iinteisha Maulut, the new Head of Business Development and Commercial. Geisha is taking over from NGL Abdulazatayim, who has retired effective Q4 2021. We will start the session with highlights, company's performance, updates and to be followed by For reference, our financial results is available at both Busan Malaysia and PGD website. The presentation material for today's session is also available at our website and at Intrado's webcast platform. Without further ado, I'll hand over to Ich. Edith for the highlights. Edith? Thank you, Izzan. Salamu alaykum and good evening, everyone. Thank you for joining us today. Again, I would like to apologize for slight delay in our session. Start with the external environment. In the Q2 of 2021, we saw MCO2.0 extended until May. But after that, as everybody is aware, there was a total lockdown and the new national recovery plan were introduced in June. Nevertheless, despite the surge of COVID-nineteen cases in the country, for Malaysia, the economic activities carry on, Businesses to continue to operate as reflected by the growth in Malaysian GDP and Industrial Production Index In Q2 2021. Now when you look at our operation, it continue uninterrupted. Of course, with Our credit security to ensure the sustainability of energy security for the country. Our Effort was to get our staff to be vaccinated early so that our operation can continue without interruption. So happy to say that at this moment, more than 90% of our staff Has actually been vaccinated. And going forward, we should be able to carry our operation Without interruption, go ahead, Puneet. You can go to the next slide, Gilead. So as I mentioned, our business was Operating as usual despite the challenging environment as highlighted. Operationally, our plants and facilities sustained high reliability across all our business segments, resulting in the gas processing business achieving a great target In May this year, we have new milestone, our 3rd nitrogen generation unit, NGU project, which started in 2019, has finally reached its initial acceptance stage and ready for commercial operation. This project was initiated for 2 objectives: to provide additional net margin to serve a new customer within Kete and also to enhance the backup supply for both the new and SAP customers. So, so far, we had early operation of the unit, and the early production of liquid nitrogen has taken place. And we should see new sales recorded for this in Q3 2021. Commercially, PDB is supported by our long term agreement with Petronas, other customers and new income from our ancillary services. And in April this year, we successfully recorded the 1st contractual that is applied to a new customer in Gabi, Kaneka Malaysia's Denbighan. They were one of our long term customers in Gabieng, but for other utilities. So this is a result of the 20 year sales and purchase agreement for electricity that was Signed in 2019. Yes. So as for growth, We are focused on exploring new opportunities. Work on lateral gas pipeline to flow Indah continue. We are about to embark on construction around this month. And also work On debottlenecking, the southern region pipeline are progressing as planned. This is despite the challenges of COVID as we are experiencing. Also, several discussions on potential opportunities are in progress, and we will announce accordingly in due time. Yes. Let's look at the financials. For the quarter ended 20th June 2021, PGP recorded, I think, in Asia, RMB1.38 billion in terms of revenue, slightly lower than the same quarter last year, but higher than quarter 1 this year. Group gross profit was lower at $600,000,000 on the back of higher operating costs. Profit after tax was also lower at ING 464,000,000, in line with the above mentioned lower gross profit, yes? Meanwhile, for half year performance, revenue was 3% lower at CNY 2,720,000,000, mainly due to the lower product price for utilities products amidst higher sales volume. Gross profit was nevertheless 2% higher at of CNY1.31 billion with Utilities segment recording significantly higher contribution as a result of higher margins and lower operating costs. Profit after tax similarly improved by 9% to reach CNY 1,000,000,000 as the higher gross profit was complemented by the favorable foreign exchange movement. More details on the financial will be presented by Shares after this. Let's move on to operational performance. Gas 1st, gas processing. The operations at our gas processing plant continue to operate as usual, as I mentioned, despite the MCO announced across Malaysia and the increasing COVID cases in the country, the OEE the overall procurement effectiveness remained within range for both C1 and C2. We achieved 99.9% Sales GAAP Delimacy, which demonstrate our commitment to the customers. The high level of efficiency also resulted in 47 point €5,000,000 of performance incentive achieved. And I think everybody is aware that the incentive consisted of performance base for the production of liquid products and intake as well as the efficiency in the consumption of internal gas consumption. Next, the gas transportation and reclassification segments. Pipeline network reliability was sustained at close to 100%, and we delivered an average of close to 2,000,000,000 standard cubic feet per day of Sales gas to customers. Regasification business, both the RGP, Sungai Gudang and Pundaram, each sustained 100% OEE level. And during the quarter, Sumeghu Dang received 2 cargoes, While RGT Pengerang received 7 cargoes, making it a total of 9 cargoes received to support our ship was commitment to deliver to their customers. Utilities, next. Overall, we continue to fulfill customers' demand, 100% PDR recorded across all products. During the quarter and the 1st 6 months of 2021, electricity uptake remained at a similar level. The Q2 volume includes the new delivery, as I mentioned just now, to Canacla and would have been higher if not for low offtake from existing customers. Steam offtake has increased, in line with the new delivery to polyplastic beginning Q4 2020. Industrial gases, the higher offtake in Q2 2021 compared to Q2 2020 was mainly due to lower offtake the higher offtake in quarter 2, 2021 was because Lower update in last year's quarter, primarily due to customer customer turnaround. Happy to note that in future, we have obtained our NEDA license to be able to inject Any excess capacity, of course, our utility facility, we have started the export to the grid under the NEDAR license on 20th August. And going forward, for the remaining part of the year, we Expect potentially higher electricity volumes sold to the customers because of this NEDA license that we have secured. That's all for operational performance. We will next move to financial segment. Over to you, Sarif. Thank you. Thank you, Chedis. Assam Alaikum and a very good evening, everyone. Hope everyone is doing well. Sharice here, and I'll be taking you through the financials. So if you could please turn to Page 14, we will start with the segmental performance of Gas Processing Business. In Q2 2021, we saw the business continue to run as updated by Jiali despite the MCO announced by the government. Against the preceding quarter, quarter 1 2021, revenue was comparable at RM428 1,000,000, while gross profit was lower by 12% at rmb203.13 million mainly on higher operating costs. Against corresponding quarter, quarter 2 of last year, Segment revenue was also comparable. Segment results was lower by 15%, again due to higher operating costs mainly relating to depreciation. For results against the corresponding period, revenue was comparable at RM857 1,000,000, while segment results declined by 3% to ry456 million due to again higher operating costs and again, mainly on depreciation expenses. Moving on to guest transportation, Under the IVR or incentive based regulation, the RP-one tariff for the PGU pipeline network remains unchanged for 2021. Comparing against the preceding quarter, quarter 1 of 2021, revenue was slightly higher by 1% at RMB291 1,000,000. Gross profit was lower by 10% at rmb179 1,000,000 on higher operating costs during the quarter. This is mainly to do with maintenance costs and is in line with higher level of planned activities for the quarter. Against the corresponding quarter, quarter 2 of last year, segment revenue was comparable. Gross profit was lower by 14%, again due to higher operating costs and similarly on higher planned maintenance costs. Against the corresponding period, Revenue was level more or less level at RMB580 1,000,000, while segment results was 5% lower at rmb376 million, similar reason as mentioned before. Next, Moving on to regasification, whose RP1 tariffs also remain unchanged until December 2022 for both RGTSU and RGTP. Against quarter 1 2021, revenue was steady at CNY353 1,000,000. Segment results was 30% lower at RMB 138 1,000,000 on higher operating costs and this relates mainly due to internal gas consumption. Against corresponding quarter, we saw marginal growth in revenue with the introduction of new revenue streams from LNG reloading at Symeq Udang and truck loading at Pernura. Gross profit was lower by 18% on higher operating costs, again internal gas consumption. For the half year results against last year, both revenue and gross profit remain comparable at rmb701 1,000,000 and rmb 335 1,000,000, respectively, in line with the new revenue streams mentioned previously. Last but not least, for utilities, As you may be aware, the segment saw changes in terms of its fuel gas cost pricing from regulated price to reference market price effective 1st November 2020. On the sales end, the utilities product pricing allows for cost to be passed through with the exception of Therefore, when we see a decrease in fuel gas price, this would generally result in favorable margin impact and vice versa. So comparing against preceding quarter, quarter 1 2021, we saw revenue growing by 13% to Ringgit312 1,000,000 on higher product prices across our products. Segment gross profit was ringgit17 million, lower by 7%, in line with the higher fuel gas price and hence the cost during the quarter, while sales volumes were sustained. For results against last year, Q2, revenue declined by 5%, attributable mainly to lower product prices, although we did see higher sales volume from new customers. Conversely, the segment gross profit surged by 40% as we had favorable margin impact on the back of lower fuel gas costs as well as lower depreciation expenses. For the first Half of twenty twenty one compared to last year similar trend to corresponding quarter with revenue declining 11% to RMB87 1,000,000 on lower product prices amid higher sales volume from new customers, while segment gross profit improved by 75% to reach a RMB145 1,000,000 again on favorable margin impact. Next on Page 18, which is the group level results. Firstly, for the preceding against preceding quarter, quarter 1, the group revenue stood at RMB1.38 billion, higher by 3% due to revenue being higher from utility segment. Gross profit, however, declined by 16% to Ringgit600 1,000,000 as we saw higher operating costs across all segments as explained previously. Profit after tax was correspondingly lower by 14% at rmb464 1,000,000. On the back of the low Gross profit as well as lower share of profit from our JV companies. This was offset by a favorable impact on foreign exchange movement. In terms of the share of profit, this declined mainly due to provisioning of tax at Kimani's Power in Shanghai. And this provisioning of tax is a one off and it is a non cash item relating to deferred tax. Against the corresponding quarter, Q2 2020, we saw group revenue declining ever to slightly by 1%, mainly attributable to Utility segment. Gross profit lower by 11%. Again, we saw high operating costs across gas processing, gas transportation and regasification segments. Although these were offset by the stronger contribution from utilities. Profit after tax for the quarter was 19% lower in tandem with gross profit, coupled with Unfavorable movement on foreign exchange and lower share of profit from 2 of the group's JVs, namely Timanis Power or KPSB and Pengerang Gas Solutions, Serenberg High PGSSB. KPSB was affected by unfavorable movement on foreign exchange similar to the PGV, while PGSSB recorded lower sales volume. Year on year, Group revenue declined slightly by 3% to RMB2.72 billion on lower utilities revenue, while gross profit improved slightly on stronger activities margins. Profit after tax grew 9%, in line with the higher gross profit as well as favorable ForEx. Moving on to balance sheet, which is on Page 19. Our balance sheet remains very robust with over RMB18 1,000,000,000 in total assets as at 30 June 2021, while cash and cash equivalents stood at around RMB3.5 RM5 1,000,000,000. Also, the distribution of the segmental assets remain more or less similar as reported to the previous quarter. On to dividends on Page 20, The Board has approved a second income dividend of RMB0.16 per share amounting to RMB316.6 million, which will be payable on September 20, 2021. This interim dividend demonstrates our commitment to ensure And I would like to pass the line over to Ajith to share a few things on company update. Thank you. Thank you, Sharis. Moving on to update on the next slide. So I think we continue with our growth pursuit. As mentioned in the last session, we are focusing on 3 areas. 1 is on integrated utilities Solution, let's say, Park and Small Quotient Solutions. We are continuing our discussion with some of the potential Buyers or users of the Cogent solution at the industrial park. Again, at appropriate time, we will make an announcement on this. We are also looking at potential ITP opportunities, as mentioned previously, in Sabah, especially for the expansion of our Kimani installed plant as well as together with Petronas for potential opportunity of integrated LNG to power regionally in Southeast Asia. We are continuing also on studies on Potential step out opportunity considering that the current trend of energy transition. So study to determine whether there are potential areas that PGP should be looking at to position ourselves for the energy transition that is taking place today. So that is Thank you. We have the first question from the line of Ajay Nir Chandani from JPMorgan. Please go ahead. Hi, thank you so much. Ajay here from JPMorgan. Two questions from me, given the limit. The first thing, if you could expand a little bit more specifically on the higher operating costs that you've seen Q on Q because this is Pretty much across every single division, regasification, processing and transportation. You have talked about some maintenance costs, some amount of depreciation. But specifically, if you could help us get a little bit more color in terms of number 1, What exactly what exact cost components for each of the divisions? And second part of that question is, should we expect This to recoup as we move into the Q3 or do you think these costs are sticky and will remain for the rest of the year? That's my first question. Second question that I had was specifically on your DPS. You've continued to pay a nice solid $0.16 a quarter. Last year, you did pay a pretty large special. Can we expect that to potentially continue as we move into the end of this Financial year as well. Those are my two questions. Thank you. Thank you For the question, first, I think I'll take the question on the dividend. I think We will try to maintain the dividend in the remaining quarters as per the current percentage. The Dividend that we had last year was once off special dividend to due to Capital restructuring that we have for one of our assets in the business. So going in the next 2 quarters, I think similar level of dividend is expected, yes. Thank you. And if I can I yes, and thanks, Yi Jin, for the questions? And if I can take The first question, as you rightly pointed out, all three stakeholders were higher across well, all three segments actually with the exception of utilities. For the gas processing segment, it is mainly depreciation. There was a turnaround at The GTP-1, which is the 1st gas processing plant on the LCG unit that occurred earlier in the year. So the capitalization of those costs had led to the higher depreciation charge for quarter 2. So moving forward, we should be seeing those similar lines similar levels of OpEx, particularly the depreciation for gas processing. For gas transportation, as mentioned, it is mainly to do with maintenance. And actually, these are all planned maintenance. In that last year, obviously, we were limited somewhat by the MCO when the sort of the requirements were a lot stricter. So this year, we are seeing a more usual level of activities as far as maintenance is concerned for the gas Patient segment. So moving forward, barring any developments with regards to the MCO, We should be seeing similar levels for OpEx. And thirdly, for the regasification segment. This is mainly to do with the internal gas consumption costs. For this quarter, there was exceptionally High level required for operational needs. However, moving forward, we do expect this to be tapering off. So for VEGAS from where we are sitting that should kind of ease off for the next 6 months. Thank you so much. I hope that answers your question. Yes. Thank you. We have our next question from the line of Alex Guo from Ambank. Please go ahead. Yes. I just want to go back to the earlier question on the dividend prospects, where Injaz has indicated that you're planning to maintain dividend. How would To reconcile that with your capital optimization strategy and together with that question, Could you give us some kind of idea on the potential investment CapEx that you're going to Need to provide regarding your Kimani's power expansion and together with the Petronas regional aspirations. That's my first question. My second question is also regarding Your maintenance costs, could you quantify in terms of absolute amount what was the Overall maintenance costs for the group in the second quarter and first half of the year? And should we look at the run rate for the first half or the 2nd quarter. Okay. Thank you for the question. I'll take for the CapEx that you asked On the first question, I think at this moment, it's still preliminary on some of those growth opportunity that we are working on. So at this moment, we cannot we do not have We're not the accurate estimate yet on the CapEx. But until those are actually more firm, Again, going forward on the dividend is we have been paying about 70% or so dividend payout. So we expect to maintain that. Of course, when you have some of those growth Yes, becoming more weird, and then you will do you will relook back at how you pay dividend. Okay. And yes. It's Hari to take the second. Yes. Sure. Hi, Alex. Yes. And also to On the dividend, I think for us the position remains the same. We still look at the level of dividends in terms of sustaining that. The capital restructuring exercise is still ongoing. But as you are aware, we are looking at Several growth opportunities at the moment. So there is a need to balance between the 2. But again, we will consider Any sort of like additional dividends and so on, Accordingly, it should that arise. But at the moment, the target is to sustain the level of dividends in terms of that GBP 0.72 Yes. Sorry, there was another question on maintenance cost. For the 2nd quarter, there was a significantly higher considerably higher maintenance operations and maintenance costs. Was around $100,000,000 to $110,000,000 within that range. And this compares to the preceding quarter, quarter 1, which is close to about RMB80 1,000,000. So moving forward, the quarter 2 levels would be a better indicator As far as the planned activities are concerned at this point of time. Okay. Could you also refresh On what is your CapEx guidance for this year and next year, is there any change? No, there is no change as far as the CapEx levels are concerned. Again, The guidance that we have provided would really depend on if we have any new projects being announced. But at the moment, we are looking at ringgit1.2000000000, 1,300,000,000 ringgit For this year? Yes. Okay. Great. I'll list the platform for others. Maybe I'll come back later Thank you. Please press the pound or hash key. We have a follow-up question from Ajay Miraj Just to follow-up specifically on the transportation division. I just wanted to reconfirm, given the tariff reset, we should see the exact same tariffs into 2022 as well similar to 20 '21. Is my understanding correct? Yes, that's correct. Yes. As of now, the tariff will be up to 2022. And then we will start our 2nd regulatory period, which will run from 2023 for another 2 years When is there any review for that later as we move into 2022? Or is that already been set in Stone, in terms of what's the likely tariff reset starting January? Yes. In every regulatory period, you will have So currently, we are preparing for that discussion with Sveranjanjanjanjanjanjanjan And again, part of the requirement is that for us to submit our package for the new tariff regime by Q1 next year. So we are in the midst of preparing for that, yes. Excellent. Thank you so much for the clarity. Thank you. Okay. I'll just read one question from the line. Please go ahead. Yes. What is the status of the lateral project pipeline to Polo Indus and the key type and expected completion date for that? Okay. Thank you. Project is currently at about 7%. CapEx as announced by us is RMB 542 million including the cost of land acquisition. The completion date remains Initial acceptance date March 2023. And yes, it will be part of the RT2 tariff as mentioned just now starting in 2023. The cost has Being approved by ST to be part of RT2, yes? One more question. Is Fedoras get involved in cover capture and storage projects? At this moment, as I mentioned, we are undertaking the study on energy transition. Carbon capture and storage is part of the in thing in the energy transition world. I don't know yet whether It will make sense for us to be in there, but the study is ongoing. But PETRONAS also is looking at carbon capture because when you want to do carbon capture, you need a big underground storage. And most of our underground storage today are actually at the offshore. So Petronas upstream is actually looking at it. And I know Potentially for our carbon emission could be part for that to be reinjected Into the initiative that Petronas is doing. Okay. For RegEx segment. Is the IGC cost being passed through or it's up by? Yes. Under the IDR, the IGT cost is passed through in the sense that we recover it through the tariff. However, there are timing variances obviously because when we recover through tariff, we actually get a 6 amount for the 3 years for each of the year. But obviously, when there are fluctuations up and down during the quarter, So it will impact the margin for the reclassification segment, but it is positive. Can you please share more about how this NEDA works? Okay. NEDA is a license granted to industry players that applied for it that has excess capacity from their system. So for us, we do have that excess capacity, but you can actually sell Maximum of 30 megawatts per site. And we do have excess capacity up to 30 from time to time. And when we have that excess capacity, we can nominate to supply into the grid. And the price that we are going to get is based on the system marginal cost or system marginal price that the grid is publishing every day. So we always look at the system marginal price for us to nominate If the price is actually above our cost, then definitely we will nominate up to the Maximum level that I mentioned just now, so that we can sell to the grid at a margin. So I hope that explains how it works. Thank you, Tejas. Any more questions from the line of call? Yes, we have a follow-up from Alex Ko again. Please go ahead. Okay. Yes, I do have a number of questions. It's regarding the LNG truck loading and swaddlers and nitrogen unit, And Ji Yu, how much did it add to your profit contribution? Could you give us some sense of The percentage or perhaps the absolute value in the second quarter? My second question is Regarding the bottlenecking progress, there was this thing on that you mentioned in your slide that you are planning to increase the pressure on the for the compressors. So I'm just wondering what is the status now and how much have you spent? I understand the CapEx was about RMB 100,000,000. Yes, Alex. Thank you for the question. I'll take the question on G1419. Again, The demand in Southern Sector, our shipper has indicated that It is probably one of the more bullish demand center for the country. And And the current pipeline that we have is only one pipeline going straight into Johor from Segarman, into Johor Bahru and then Pasir Guglang as well as to Singapore. So debottlenecking is about Adding in another compressor, actually another 2 compressor at the CapEx of $100,000,000 that you mentioned just now. And the Suran Sertanaga, SE has agreed for this cost to be socialized, to be part of RP2. And we are supposed to complete this project June, May, June next year. At this moment, despite the challenges of COVID that we have on movement of people permit to work or whatnot, we're actually progressing quite well. And without any without if there are no major, For example, if we lock down or whatnot, we should be able to complete the project sometime middle of next year. If I could take the question about the truck loading and NGU contribution. For the truck loading, the cost is actually very minimal. So in terms of revenue, we are looking at about RM4 1,000,000 to RM5 1,000,000 for the 6 months. And as for the NQ contribution, again, it's quite minimal in absolute terms, but it provides Opportunities, say, for spot sales, if you if yes. So in terms of contribution, it's about roughly around CHF2 1,000,000 per month. Okay. Maybe I just squeeze in one final question. You mentioned about the Kimani power plant expansion. Since it's a JV, I suppose the CapEx will also be jointly shared. But I'm just wondering If you were to expand, how much more in terms of megawatts would the expansion be? See, the capacity normally determined by the government, the Suran, just another. And that capacity would be dependent on the demand growth of Sabah. So that's the current capacity that they have requested. Yes. We actually have the necessary size to do that. But of course, it depends on Srianjos and Nagar actually selecting the Project proponent for that. So I can't say what is the capacity because that is the government decision on what will be the capacity is, but we are in discussion with them at this moment. Okay. Regarding the Kyumani power plant, I mean, your JVs have always been fluctuating because of the ForEx element. Is there any attempts to try to manage that? I mean, by swapping out the foreign Exchange loans with local currency in order to have a natural, what you call, hedging? Yes. The contracts, the long term contracts are in USD, they do have a hedge in place, but it's just the fluctuations sort of on a periodic basis. In any case, the actual realized ForEx, all those should be covered under The PPE, yes. So there is simply a hedging, yes. It's just that the Sometimes there's a bit of a mismatch that's why it's unrealized in the book. Yes, but I'm just wondering why don't we just swap it back To swap it into Malaysian ringgit since you're getting Malaysian ringgit revenue. So why not just swap it instead of forward For U. S. Dollars, you just convert it to Malaysian ticket? Yes. The contract actually is not with someone a resident. So that's why the contract was in U. S. T. And that's been the it's been something which has been in place for quite a while. Nevertheless, we are looking at the contracts in general. So that might be one of the areas that we might With the vendor. Okay. Thank you very much. That's all for me. Okay. We have one question from the web. Under Meijer, if TGS from It doesn't work based on whatever nomination that we put in. So if we put in the nomination 30, the grid will take 30. Okay. And if the pricing per unit like the system price is 200 per It should work like that. I mean the system marginal price is something that single buyer is deciding sometime on daily basis, sometime on hourly basis, Even half an hour basis. So we do look at that at every instant to make sure that When we have our cost is lower, then we will nominate to the 3. All right. I think that is all the time we have for today. David, thank you. Thank you so much. There are no further questions. Thank you. Thank you everybody for the call. Thank you. Thank you for the call. Thank you. This concludes today's conference call. Thank you for participating. You may all disconnect now.