KUALA LUMPUR (Feb 6): Kenanga Research expects Gas Malaysia Bhd’s net profit for the fourth quarter ended Dec 31, 2023 (4QFY2023) to reach RM88 million, up 3% quarter-on-quarter, bringing cumulative full-year earnings for the financial year 2023 (FY2023) to RM368 million, driven by higher sales volume from the glove sector and higher gas selling price.

In a note on Tuesday, the research house maintained its "market perform" rating on the company with a target price of RM3.33 based on weighted average cost of capital (WACC) of 6.5% and terminal growth (TG) of 2%.

It also kept its FY2023 to FY2024 margin assumption of RM2.80 to RM2.50 per million British thermal units (mmbtu).

“We expect better sales volume sequentially by 4% in 4QFY2023, given the improved business condition especially in the glove sector, which saw its declining sales trend bottom out in 2QFY2023,” Kenanga said, adding that the glove sector made up over 30% of Gas Malaysia’s total sales volume pre-pandemic.

“On the other hand, 4QFY2023 gas selling price is also likely to improve further, given the DOSM [Department of Statistics Malaysia] LNG [liquefied natural gas] price which rose 5% to RM43.96/mmbtu in 4QFY2023 from RM41.87/mmbtu in the preceding quarter,” Kenanga added.

On its outlook, Kenanga opined that Gas Malaysia will remain a strong market player as a key natural gas retailer in Malaysia. It also noted Gas Malaysia’s strong earnings visibility, underpinned by its ability to retain customers, typically via three-year contracts.

Kenanga also highlighted Gas Malaysia’s strong free cash flow generation, anchoring a dividend yield of more than 6%, despite the lack of catalysts, given that its earnings had already peaked in FY2022 with gas prices easing.

At the time of writing, Gas Malaysia shares traded up three sen or 0.93% to RM3.27, valuing the company at RM4.15 billion.