• Gas Malaysia’s (GMB) 4Q17 core profit grew strongly by 63% qoq and 57% yoy to RM77m while 2017 core profits rose 19% to RM199m, exceeding ours/consensus estimates by 22%/21%.

• The strong performance was on the back of higher sales volume and/or realised tariff as well as higher consumer contribution (+37%) to RM35m in for the entire 2017.

• An interim DPS of 4sen was declared, bringing total DPS of 8sen for 2017E thus far. If GMB sustains its 100% payout as per 2016, we could expect another 7.2sen DPS for 2017 (totaling 15.2sen) and 2018/19F DPS implying 5.9-6.2% yield at current levels.

• Its share price weakness persisted in recent months. Given its sound fundamentals, especially under the IBR, and the positive economic outlook, we believe the stock is sorely overlooked. Reiterate BUY with a revised SOP-derived TP of RM3.90.

A genuinely robust quarter

Gas Malaysia’s strong 4Q17 performance ended its 2017 campaign on a high note. The strong growth in 4Q17 was fueled by higher sales volume and complemented by higher consumer contribution. The latter rose to RM16m in 4Q17 (+45% qoq, 107%yoy). However, even excluding consumer contribution, earnings rose 69% qoq and 47% yoy to RM61m – implying that sales volume beat our estimates. Its JV contribution continued to strengthen after recovering in 3Q17.

Strong 2017 possibly due to better-than-expected volume

Overall, Gas Malaysia’s 2017 core profits rose at a staggering 17% yoy to RM253m to exceed ours and consensus estimates by 22% and 21% respectively. The outperformance was mainly due to better than-expected revenues recorded, which could be due to sales volume soundly ahead of estimates and/or higher realised tariff.

Strong upgrades on robust outlook anticipated

While the ‘boost’ from customer contribution might taper off over time, it soundly indicates Malaysia’s strengthening manufacturing sector and potential structural growth for Gas Malaysia (arising from the new pipes laid) going forward. Management guided 6-6.5% demand growth for 2018E. We raised our 2018-20 estimates by 14- 20% on higher volume growth and realized tariff expected.

Reiterate BUY with an SOP-derived TP of RM3.90

GMB’s share price has trailed the KLCI over the past 1/3/12 months. We believe it has been sorely overlooked given the robust earnings outlook, backed by positive economic outlook, and stable FCF under the IBR Framework. Reiterate BUY with higher SOP-derived TP of RM3.90. Should GMB sustain its 100% dividend payout in 2016, the stock implies attractive yields of 5.9-6.2% at current price levels.

Source: BIMB Securities Research - 19 Feb 2018