Good day and thank you for standing by. Welcome to the PETRONAS Gas Berhad Q2 FY 2021 analyst briefing. At this time, all participants are on listen only mode. After speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to speaker today, Ms. Izan Hajar Ishak. Please go ahead, ma'am.
Thank you, Ajay. [Non-English content] and good evening, everyone. Thank you for joining our session today for PETRONAS Gas Berhad analyst briefing for quarter ended June 30th, 2021. I'm Izan Hajar Ishak from Investor Relations. Sorry, we had to start 15 minutes later from plan. With us from PGB today, we have Encik Abdul Aziz Othman, Managing Director and CEO. Puan Shariza Sharis M Yusof, CFO, and Encik Hisham Maaulot, the new Head of Business Development and Commercial. Encik Hisham is taking over from Encik Abdul Razak Saim, who has retired effective August 2021. We will start the session with highlights, company's performance, updates, and to be followed by Q&A. For reference, our financial results is available at both Bursa Malaysia and PGB 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 Aziz for the highlights. Aziz.
Thank you, Izan. Assalamualaikum 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 second quarter of 2021, we saw MCO 2.0 extended until May. 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-19 cases in the country, for Malaysia, the economic activities carried on. Businesses to continue to operate, as reflected by the growth in Malaysian GDP and industrial production index in Q2 2021. Now, when we look at our operation, it continue uninterrupted. Of course, with our criticality 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.
Happy to say that at this moment, more than 90% of our staff has actually been vaccinated. Inshallah, going forward, we should be able to carry our operation without interruption, God willing. Can go to the next slide, Izan. As I mentioned, our business was operating as usual, despite the challenging environment as highlighted. Operationally, our plants and facilities sustain high reliability across all our business segments, resulting in the gas processing business achieving the agreed target set incentive. In May this year, we have new milestone. Our third 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 two objective, to provide additional nitrogen to serve a new customer within petchem, and also to enhance the backup supply for both the new and existing customers.
Far, we had early operation of the unit, and the early production of liquid nitrogen has taken place. We should see new sales recorded for this in quarter three 2021. Commercially, PGB is supported by our long-term agreement with PETRONAS, other customers, and new income from our ancillary services. In April this year, we successfully recorded the first contractual electricity supply to a new customer in Gebeng, Kaneka Malaysia Sdn Bhd. They were one of our long-term customers in Gebeng, but for other utilities. This is a result of the 20-year sales and purchase agreement for electricity that was signed in 2019. Yeah. As for growth, we are focused on exploring new opportunities. Work on lateral gas pipeline to Pulau Indah continue. We are about to embark on construction around this month. 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 discussion on potential opportunities are in progress, and we will announce accordingly in due time. Let's look at the financials. For the quarter ended June 20, 2021, PGB recorded MYR 1.38 billion in term of revenue, slightly lower than the same quarter last year, but higher than quarter one this year. Group gross profit was lower at MYR 600 million on the back of higher operating costs and profit after tax was also lower at MYR 464 million, in line with the above mentioned lower gross profit. Meanwhile, for half year performance, revenue was 3% lower at MYR 2.72 billion, mainly due to the lower product price for utilities products amidst higher sales volume.
Gross profit was nevertheless 2% higher at MYR 1.31 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 MYR 1 billion, as the higher gross profit was complemented by the favorable foreign exchange movement. More details on the financials will be presented by Shariza Sharis after this. Let's move on to operational performance. First, 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 or the Overall Equipment Effectiveness remain within range for both C1 and C2. We achieved 99.9% of sales gas reliability, which demonstrate our commitment to the customers. The high level of efficiency also resulted in MYR 47.5 million of performance incentive achieved.
I think everybody's aware that the incentive consisted of a performance base for the production of liquid products and NGL, as well as the efficiency in the consumption of internal gas consumption. The gas transportation and regasification segment. Pipeline network reliability was sustained at close to 100%, and we delivered an average of close to 2 billion standard cubic feet per day of sale gas to customers. Regasification business, both the RGT Sungai Udang and Pengerang, each sustain 100% OEE level. During the quarter, Sungai Udang received two cargoes, while RGT Pengerang received seven cargoes, making it a total of nine cargoes received to support our shippers' commitment to deliver to their customers. Utilities. Overall, we continue to fulfill customers' demand, 100% PDR recorded across all products. During the quarter and the first six month of 2021, electricity offtake remain at a similar level.
The Q2 volume includes the new delivery, as I mentioned just now, to Kaneka, and would have been higher if not for low offtake from existing customers. Steam offtake has increased in line with the new delivery to Polyplastics, beginning quarter four 2020. Industrial gases, the higher offtake in quarter two 2021 compared to quarter two 2020 was mainly due to lower offtake. The higher offtake in quarter two 2021 was because lower offtake in last year's quarter, primarily due to a customer turnaround. Happy to note that in future, we have obtained our NEDA license to be able to inject any excess capacity of both our utility facility. We have started the export to the grid under the NEDA license on August 20th.
Going forward for the remaining part of the year, we expect potentially higher electricity volume 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, Sharis. Thank you.
Thank you, Chair Aziz. [Non-English content] and a very good evening, everyone. Hope everyone is doing well. Sharis here, and I'll be taking you through the financials. If you could please turn to page 14, we will start with the segmental performance of gas processing business. In quarter two 2021, we saw the business continuing to run as updated by Chair Aziz, despite the MCO announced by the government. Against the preceding quarter 1 2021, revenue was comparable at MYR 428 million, while gross profit was lower by 12% at MYR 213 million, mainly on higher operating costs. Against corresponding quarter two 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 MYR 857 million, while segment results declined by 3% to MYR 456 million due to, again, higher operating costs, and again, mainly on depreciation expenses. Moving on to gas transportation. Under the IBR, or Incentive-Based Regulation, the RP1 tariff for the PGU pipeline network remains unchanged for 2021. Comparing against the preceding quarter, quarter one of 2021, revenue was slightly higher by 1% at MYR 291 million. Gross profit was lower by 10% at MYR 179 million 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 two 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 more or less level at MYR 580 million, while segment results was 5% lower at MYR 376 million. Similar reason as mentioned before. Moving on to regasification, whose RP1 tariff also remain unchanged until December 2022 for both RGTSU and RGTSE. Against quarter one 2021, revenue was steady at MYR 353 million. Segment results was 30% lower at MYR 138 million 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 Sungai Udang and truck loading at Pengerang. 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 MYR 701 million and MYR 335 million 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 November 1st, 2020. On the sales end, the utilities product pricing allows for cost to be passed through, with the exception of electricity. When we see a decrease in fuel gas price, this would generally result in favorable margin impact and vice versa. Comparing against preceding quarter, quarter one 2021, we saw revenue growing by 13% to MYR 312 million on higher product prices across all products.
Segment gross profit was MYR 70 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, quarter two, revenue declined by 5%, attributable mainly to lower product prices, although we did see higher sales volume from new customers. 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 2021 compared to last year, similar trend to corresponding quarter, with revenue declining 11% to MYR 587 million on lower product prices amid higher sales volume from new customers, while segment gross profit improved by 75% to reach MYR 145 million, again, on favorable margin impact. On page 18, which is the group level results.
Against preceding quarter, quarter one, the group revenue stood at MYR 1.38 billion, higher by 3% due to revenue being higher from utility segment. Gross profit, however, declined by 16% to MYR 600 million as we saw higher operating costs across all segments as explained previously. Profit after tax was correspondingly lower by 14% at MYR 464 million on the back of the lower gross profit as well as the 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 a provisioning of tax at Kimanis Power Sdn Bhd, and this provisioning of tax is a one-off, and it is a non-cash item relating to deferred tax. Against the corresponding quarter, quarter two 2020, we saw group revenue declining ever so slightly by 1%, mainly attributable to our utility segment.
Gross profit lower by 11%. We saw higher operating costs across gas processing, gas transportation, and regasification segment, 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 two of the group's JVs, namely Kimanis Power or KPSB, and Pengerang Gas Solutions Sdn Bhd, PGSSB. KPSB was affected by unfavorable movement on foreign exchange similar to the PGB while PGSSB recorded lower sales volume. Year-on-year, group revenue declined slightly by 3% to MYR 2.72 billion on lower utilities revenue, while gross profit improved slightly on stronger utilities margin. 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 MYR 18 billion in total assets as at June 30th, 2021, while cash and cash equivalents stood at around MYR 6.5 billion. 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 interim dividend of MYR 0.16 per share, amounting to MYR 316.6 million, which will be payable on September 20th, 2021. This interim dividend demonstrates our commitment to ensure sustained level of returns to the shareholders despite the ongoing economic conditions. With that, we end the financial section, and I would like to pass the line over to Aziz to share a few things on company update.
Thank you, Sharis. Moving on to updates on the next slide. I think we continue with our growth pursuit. As mentioned in the last session, we are focusing on three areas. One is on integrated utilities solution at industrial park and small cogen solution. We are continuing our discussion with some of the potential buyers or users of the cogen solution at the industrial park. Again, at appropriate time, we will make the announcement on this. We are also looking at potential IPP opportunities as mentioned previously, in Sabah especially, for the expansion of our Kimanis Power Plant, as well as together with PETRONAS for potential opportunity of integrated LNG to power regionally in Southeast Asia. We are continuing also on the studies on the potential tap-off opportunity considering that the current trend of energy transition.
Study to determine whether there are potential areas that PGB should be looking at to position ourselves for the energy transition that is taking place today. That is all I have today. Moving on to question and answer. Thank you.
Okay. Let's move on to question and answer. AJ?
Certainly. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Each caller will be allowed two questions. If you wish to ask further questions, please press star one again. It's star one to ask your question. Thank you. We have the first question from the line of Ajit Nirchandani from JP Morgan. Please go ahead.
Hi. Thank you so much. AJ 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 QoQ. This is pretty much across every single division, regasification, processing, and transportation. You have talked about some maintenance costs, some amount of depreciation. Specifically, if you could help us get a little bit more color in terms of, number one, what exact cost components for each of the divisions. Second part of that question is, should we expect this to recoup as we move into the third quarter, 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 MYR 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'll take the question on the dividend. We will try to maintain the dividend in the remaining quarters as per the current percentage. The dividend that we had last year was a one-off special dividend due to capital restructuring that we had for one of our assets in the business. Going in the next two quarters, similar level of dividend is expected. Yeah. Ajit?
If I can answer. Yeah. Thanks, Ajit, for the questions. If I can take the first question, as you rightly pointed out, operating costs were higher across all three segments, actually, with the exception of utility. For the gas processing segment, it is mainly depreciation. There was a turnaround at GPP1, which is the first gas processing plant on the LPG unit that occurred earlier in the year. The capitalization of those costs had led to the higher depreciation charge for quarter two. Moving forward, we should be seeing those similar levels of OpEx, particularly the depreciation for gas processing. For gas transportation, as mentioned, it is mainly to do with maintenance. Actually, these are all planned maintenance in that last year, obviously, we were limited somewhat by the MCO when the requirements were a lot stricter.
This year, we are seeing a more usual level of activities as far as maintenance is concerned for the gas transportation segment. Moving forward, barring any developments with regards to the MCO.
Yeah
we should be seeing similar levels for OpEx. Thirdly, for the regasification segment, this is mainly to do with the internal gas consumption costs. For this quarter, there was an exceptionally high level required for operational needs. However, moving forward, we do expect this to be tapering off. For regas, from where we're sitting, that should kind of ease off for the next six months.
Thank you so much. Very helpful.
Hope that answers your question. Yeah.
Thank you. We have our next question from the line of Alex Goh from AmBank. Please go ahead.
Yes. I just want to go back to the earlier question on the dividend prospects, where Encik Aziz indicated that you're planning to maintain dividend. How would you reconcile that with your capital optimization strategy? 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 Kimanis Power expansion and together with the PETRONAS regional aspirations? That's my first question. My second question is also regarding your maintenance cost. Could you quantify in terms of absolute amount what was the overall maintenance cost for the group in the second quarter and first half of the year? Should we look at the run rate for the first half or the second 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 opportunities that we are working on. At this moment, we do not have the accurate estimate yet on the CapEx. Until those are actually more firm, again, when going forward on the dividend, 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 projects becoming more real, then we look back at how you pay dividends. Yeah.
Yeah. Okay. Yeah.
Shariza Sharis will take the second question.
Sure. Hi, Alex. Yeah. Also to add on the dividend, I think for us the position remains the same.
Yeah.
We still look at the level of dividends in terms of sustaining that.
Yeah.
The capital restructuring exercise is still ongoing.
Yeah.
As you are aware, we are looking at several growth opportunities at the moment. There is a need to balance between the two. Again, we will consider any additional dividends and so on accordingly, should that arise. At the moment, the target is to sustain the level of dividends in terms of that MYR 0.72. Yeah. Sorry, there was another question on maintenance cost. For the second quarter, there was a considerably higher operations and maintenance cost. It was around MYR 100 million-MYR 110 million, within that range. This compares to the preceding quarter one, which is close to about MYR 80 million. Moving forward, the quarter two levels would be a better indicator as far as the planned activities are concerned at this point in time.
Okay. Could you also refresh us on what is your CapEx guidance for this year and next year? Is there any change?
There is no change as far as the CapEx levels are concerned. The guidance that we have provided would really depend on if we have any new projects being announced. At the moment, we are looking at MYR 1.2 billion-MYR 1.3 billion for this year. Yeah.
Okay. Great. I'll leave the platform for others. Maybe I'll come back later when others have.
Sure. No problem. No problem at all. Yeah.
Thank you. Once again to ask a question, you will need to press star one on your telephone. To cancel your request please press the pound or hash key. We have a follow-up question from Ajit Nirchandani again. Please go ahead.
Thank you. 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 2021. Is my understanding correct?
Yes, that's correct. Yes. As of now, the tariff will be up to 2022, then we will start our second regulatory period, which will run from 2023 for another three years from then. Yeah.
Is there any review for that later as we move into 2022 or has that already been set in stone in terms of what's the likely tariff reset starting January?
Yeah. In every regulatory period, you will have a discussion with Suruhanjaya Tenaga. So currently, we are preparing for that discussion with Suruhanjaya Tenaga. Again, part of the requirement is that for us to submit our package for the new tariff regime by quarter 1 next year. So we are in the midst of preparing for that. Yeah.
Excellent. Thank you so much for the clarity.
Thank you.
Okay.
We have-
I'll just read one question from the app.
Please go ahead.
Yeah. What is the status of the lateral project pipeline to Pulau Indah and the CapEx and expected completion date for that?
Okay. Thank you. Project is currently at about 7%. CapEx, as announced by us, is MYR 542 million, including the cost of land acquisition. The completion date remains initial acceptance date March 2023. Yes, it will be part of the RP2 tariff, as mentioned just now, starting in 2023. The cost has been approved by ST to be part of RP2. Yeah.
One more question. Is PETRONAS Gas involved in carbon 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. PETRONAS also is looking at carbon capture because when you want to do carbon capture, you need a big underground storage. Most of our underground storage today are actually at the offshore. 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 regas segment, is the IGT cost being passed through or absorbed by PETRONAS Gas?
Yes. Under the IBR, the ICPT cost is passed through in the sense that we recover it through the tariff. There are timing variances, obviously, because when we recover through tariff, we actually get a fixed amount for the three years for each of the year. Obviously when there are fluctuations up and down during the quarter, so it will impact the margin for the regasification segment. It is passed through.
Can you please share more about how this NEDA works?
Okay. NEDA is a license granted to industry players that apply for it, that have excess capacity from their system. For us, we do have that excess capacity. You can actually sell a maximum of 30 MW per site. We do have excess capacity up to 30 MW from time to time. When we have that excess capacity, we can nominate to supply into the grid. 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. We will 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.
I hope that explains how it works.
Thank you, Encik Aziz. Any more questions from the line or call?
Yes, we have a follow-up from Alex Goh again. Please go ahead.
I do have a number of questions. It is regarding the LNG truck loading as well as the nitrogen unit, NGU. 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 debottlenecking progress. There was this thing that you mentioned in your site that you are planning to increase the pressure for the compressors. I am just wondering, what is the status now and how much have you spent? I understand the CapEx was about MYR 100 million.
Yes. Alex Goh, thank you for the question. I'll take the question on debottlenecking. The demand in southern sector, our shipper has indicated that it is probably one of the more bullish demand centers for the country. The current pipeline that we have is only one pipeline, going straight into Johor from Segamat, to Johor Bahru and then Pasir Gudang, as well as to Singapore. Debottlenecking is about adding in another compressor, actually another two compressors, at the CapEx of MYR 100 million that you mentioned just now. The Suruhanjaya Tenaga has agreed for this cost to be socialized to be part of RP2. We are supposed to complete this project 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 are actually progressing quite well.
If there are no major, for example, fuel lockdown 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. In terms of revenue, we are looking at about MYR 4 million-MYR5 million for the six months. As for the NGU contribution, again, it's quite minimal in absolute terms, but it provides opportunities, say, for spot sales.
Yeah. In terms of contribution, it's about roughly around MYR 2 million per month.
Okay. Maybe I just squeeze in one final question. You mentioned about the Kimanis power plant expansion. Since it's a JV, I suppose that the CapEx will also be jointly shared. I'm just wondering, if you were to expand, how much more, in terms of megawatt, would the expansion be?
The capacity normally determined by the government, the Suruhanjaya Tenaga. That capacity would be dependent on the demand growth of Sabah. The current capacity that they have requested, yes, we actually have the necessary site to do that. Of course, depend on Suruhanjaya Tenaga actually selecting the project proponent for that. I can't say what is the capacity, because that is the government decision on what will be the capacity is. We are in discussion with them at this moment.
Okay. Regarding the Kimanis power plant, your JVs have always been fluctuating because of the Forex element. Is there any attempts to try to manage that, by swapping out the foreign exchange loans with local currency in order to have a natural hedging?
Yeah. The long-term contracts are in U.S. dollars. They do have a hedge in place.
Yeah
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 PPA. Yeah. There is in place a hedging. Yeah. It's just that sometimes there's a bit of a mismatch. That's why it's unrealized in the book.
Yeah. I'm just wondering, why don't we just swap it into Malaysian ringgit since you're getting Malaysian ringgit revenue? Why not just swap it, instead of forward U.S. dollars, you just convert it to Malaysian ringgit?
Yeah. The contract actually is not with a resident. That's why the contract was in U.S. dollars and it's been something which has been in place for quite a while. Nevertheless, we are looking at the contracts in general. That might be one of the areas that we might discuss with the vendor.
Okay. Thank you very much. That's all for me.
Okay. We have one question from the web. Under NEDA, if PGB commit 30 MW to the grid, is the grid obliged to take the whole volume?
Yes. The system works based on whatever nomination that we put in. If we put in the nomination 30 MW, the grid will take 30 MW.
Okay. If the pricing per unit, like the system price is 200 MW per hour, then you times the volume. Is that how the calculation?
It should work like that. The system marginal price is something that a single buyer is deciding, sometimes on daily basis, sometimes on hourly basis or even half an hour basis. 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 grid.
All right. I think that is all the time we have for today. David, thank you.
Thank you so much. There is no further questions on my end.
Thank you. Thank you for the call.
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.