The Three Numbers That Swell Petronas Gas Berhad

Petroliam Nasional Berhad, or PETRONAS for short, has over 100 subsidiaries. Petronas Gas Berhad (KLCE: PETGAS; 6033.KL), which is valued at MYR43 billion, is one of them.

The company processes and transmits gas to its parent, PETRONAS, and also to its own customers. Apart from being one of Malaysia’s ten largest listed businesses, Petronas Gas also boasts one of the highest Returns on Equity (RoE) on the market.

Its RoE of 17.7% implies that the Petronas Gas generated MYR17.70 on every MYR100 of money invested in the company. The median RoE for the Malaysian market is closer to 10%.

Petronas Gas’ high Return on Equity can be traced to its impressive Net Income Margin of 44.6%. It means that the gas infrastructure company produced MYR44.60 on every MYR100 of revenues. By comparison, stablemate Petronas Chemicals Group (KLSE: PCHEM; 5183.KL) generated MYR20.50 on every MYR100 of sales.

Whilst Petronas Gas’s Net Income Margin may be high, it is not especially efficient. Its Asset Turnover of 0.32 is below the market average. It suggests that the ethane, propane and butane producer only generated MYR32 of sales on every MYR100 of assets at its disposal. The efficiency of the market is around 70% higher at 0.56.

The company does make use of borrowings, but its Leverage Ratio is not especially high. At the end of 2015, it had Total Liabilities of MYR2.8 billion and Total Assets of MYR14.3 billion. That equated to a Leverage Ratio of 1.24.

By dismantling the Return on Equity for Petronas Gas it is easy to see how the company functions. Its swollen RoE of 17.7% is the product of an impressive Net Income Margin of 44.6%; a below-market-average Asset Turnover of 0.32 and a modest Leverage Ratio of 1.24.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.