Fundamental Analysis for PETRONAS GAS BERHAD

Transcription

1 Page 1 of 9 Fundamental Analysis for PETRONAS GAS BERHAD Company Name: PETRONAS GAS BERHAD Board: Main Board Stock Code (Bursa): PETGAS FBMKLCI: TRUE Bloomberg: PTG:MK Reuters: PGAS.KL Industry: INDUSTRIAL PRODUCTS Stock Grade: Investment Grade Sub-Sector: OIL AND GAS - REFINING & DISTRIBUTION Company Description: SEPARATING NATURAL GAS INTO ITS COMPONENTS & STORING. Date of Analysis: 22-Feb-12 Price: 16.5 Investment Strategy: Value Investing Position Lump Sum + Top Up Strategy: Management Bear Case Profitability Economic Moat Financial Health Profitability 4 Economic Moa 5 Financial Heal 5 Growth 4 Bear Case 5 Management 5 Growth

2 Fundamental Analysis - Value Investing All figures in millions of Ringgit Malaysia except per share values and ratio Measures Profitability Consistently increasing sales revenue ,950 2,236 2,230 2,307 2,839 2,982 3,126 3,415 3,222 3,525 I R Comments Consistently increasing Net Income After Tax Consistently increasing EPS ,247 1, , Consistently increasing revenue in the last 5 quarters. Consistently increasing net profit in the last 5 quarters. Consistently increasing EPS in the last 5 quarters The current quarter's EPS 15% from the same quarter the year before. Dec-10 Mar-11 Jun-11 Sep-11 Dec %

3 Economic Moat Consistently increasing Net Cash from Operations Consistently high ROE > 15% Consistently ROTA > 1.2% ROIC > 15% Working capital increase slower than sales Short & declining "Cash Conversion Cycle" Free Cash Flow / Sales > 5% Gross Profit Margin (> 40%) Net Profit Margin (> 10%) ,284 1,442 1,385 1,591 1,591 1,741 1,585 1,421 1,538 2,233 7% 11% 10% 12% 14% 16% 14% 12% 12% 17% 4.73% 6.61% 6.82% 8.67% 10.33% 13.14% 11.16% 9.41% 9.57% 13.69% -1.22% 0.44% 0.16% 2.12% 3.52% 6.42% 4.39% 2.60% 9.25% 13.69% N/A 485% -242% 170% 116% 75% 50% 20% 11% 21% % 56% 48% 57% 45% 45% 45% 33% 37% 47% 31.06% 34.85% 33.22% 38.72% 36.10% 42.14% 43.05% 35.74% 36.57% 50.70% 24% 29% 29% 36% 34% 42% 35% 27% 29% 41% Strong brand, monopoly or barriers to entry Monopoly Situation: Strong Leading Brand: High Barriers to Entry: Market Leadership: YES Very Strong Very High Very Strong

4 Financial Health Long term debt < 4 times Net Profit Debt/Equity Ratio < 1 Current Ratio > 1 Growth Quality of Historical Growth Revenue growth rate is slow but acceptable in overall. After all, oil industry is not fast growing industry. However, quality of operating income, EPS and net cash from operation growth are also acceptable, but the the fluctution of growth rates are very huge. 120% 100% 80% 60% 40% 20% 0% -20% % Revenue % Operating Income % EPS % Net Cash From Operations % Revenue Growth: Operating Income Growth: EPS Growth: Net Cash From Operation Growth: Avg: 7% σ: 8% Avg: 40% σ: 46% Avg: 17% σ: 33% Avg: 7% σ: 17%

5 Strong future growth drivers Signs of progress in resolving Europe's long-running sovereign debt crisis and a tightening global supply picture in view of the geopolitical fallout over Iran's alleged nuclear ambitions have been keeping oil prices at elevated levels. Partly offsetting this favorable view has been high U.S. crude stocks and worries about China s growth outlook. As such, crude oil s near-term fundamentals remain mixed, to say the least. The long-term outlook for oil, however, remains favorable given the commodity s constrained supply picture. In particular, while the Western economies exhibit sluggish growth prospects, global oil consumption is expected to get a boost from continued strength in the major emerging powers like India, China and Brazil that continue to grow at a healthy rate. In my view, crude oil prices in 2012 are likely to witness significant upside -- rather than downside -- given the considerable supply tightness in the market. While domestic demand is relatively soft and the global economy still showing signs of weakness, the fact that demand is outpacing supply appears to be palpably evident. As long as growth from the developing nations continues and the global output is unable to keep up with that, we are likely to experience a surge in the price of a barrel of oil. With a seven-billion-strong world population and all the easy oil being already discovered and expended, we assume that crude will trade in the $95-$105 per barrel range in the near future.

6 The Bear Case Potential Risks Refer "Strong future growth drivers" Management Management and Institutional Investors are CARTABAN NOM-PETROLIAM NASIONAL BHD and EMPLOYEES PROVIDENT FUND BOARD are the major shareholder. Holding/Buying Stock Compensation - Pay for performance Reasonable compensation Red Flags Character Were executives given loans that were subsequently forgiven? Do executives get perks for by the company that they should really be paying for themselves? Does management hog most of stock options granted in a given year, or do Rank-and- File employees share in the wealth? Does management use stock options excessively? If a founder or large owner is still involved in the company, does he or she also get a big stock option grant each year? Do executives have some skin in the game? Does management use its position to enrich friends and relatives? Is the board of directors stacked with management's family members or former managers? Is management candid about its mistakes? Lack of transparency Running the business How promotional is management? Can the CEO retain high-quality talent? Does management make tough decisions that hurt results, but give a more honest picture of the company? Performance Follow-through Candor Lack of transparency Self-confidence Flexibility I - Importance; R - Rating Good rmal Bad Important Neutral t Important

7 Market Timing Criteria - Value Investing Buy Criteria Criteria 1. The current quarter's EPS is up more than 15% from the same quarter the year before. 2. Price is below DCF Intrinsic Value 3. Current EY% or Rolling 4Q EY% > 6% 4. Current DY% or Rolling 4Q DY% > 6% 5. Stock price breaks out of consolidation/dip on an uptrend. 6. Comparison of P/B ratio (for Financial stocks only) 7. Company owner, EPF, Khazanah and PNB heavily buying VI Remarks Sell Criteria Criteria 1. Current EY% or Rolling 4Q EY% < 6% for more than 2 years 2. Current DY% or Rolling 4Q DY% < 6% for more than 2 years 3. Quarterly EPS drop for 5 consecutive months 4. Fundamental of business turns unattractive or 5. Found a better opportunity to replace this stock 6. The stock drops near to my average cost or hit my stop loss 7. Long term trend changed from bullish to bearish 8. Company owner, EPF, Khazanah and PNB heavily selling. 9. Did I make a mistake? 10. Has the stock risen too far from its intrinsic value? VI Remarks Important Neutral t Important Ignore

8 Valuation - Value Investing 1. Discounted Cash Flow Valuation 3-Y 5-Y 10-Y Fair Value Actual M.O.S. 53% 53% 53% Buy Under Selection P 3-Y: Fast-growing company; operates in highly competitive, low margin industry 5-Y: Solid company; operates with advantage such as strong marketing channels, recognizable brand name, or regulatory advantage 10-Y: Outstanding growth company; operates with very high barriers to entry, dominant market position or prospects 2. Price-to-book Ratio Valuation by Price-to-book Ratio: Current EY% or Rolling 4Q EY% > 6% CU EY%: 4.41 Rolling 4Q EY%: Current DY% or Rolling 4Q DY% > 6% CU DY%: 3.03 Rolling 4Q DY%: 3.03

9 Discounted Cash Flows Valuation Shares Out. M. O. S. Growth % Market risk premium Risk free rate Discount % Terminal % 2011 FCF Excess Cash Intangibles Assets Intangibles% add to DCF Decay Rate (Yr4E-Yr7E) Extra Decay (Yr8E-Yr10E) Default Value % 8% 7.73% 3.43% 4.67% 2% % 8% 15% Custom Value 4% 15% 20% Projection of Future Free Cash Flow Yearly Growth % 1, , , , , , , , , , Y Valuation 5-Y Valuation 10-Y Valuation Discounted Perpetuity Value 62, Discounted Perpetuity Value 59, Discounted Perpetuity Value 52, Present Value 69, Present Value 69, Present Value 69, Shares Outstanding Shares Outstanding Shares Outstanding Fair Value Fair Value Fair Value Desired M.O.S. 20% Desired M.O.S. 20% Desired M.O.S. 20% Buy Under Buy Under Buy Under Current Price 16.5 Current Price 16.5 Current Price 16.5 Actual M.O.S. 53% Actual M.O.S. 53% Actual M.O.S. 53%