Bimb Research Highlights

Gas Malaysia - A strong start

kltrader
Publish date: Wed, 30 May 2018, 11:12 AM
kltrader
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Bimb Research Highlights
  • 1Q18 core profit increased 23% yoy to RM40m on higher sales volume and tariff to more than offset higher effective tax rate.
  • Against full year estimates, 1Q18 trailed ours and consensus at 20% and 21% respectively. We deem this to be inline ahead of some earnings respite especially in 2H18.
  • We take the view that the new government would continue to observe the IBR Framework and GCPT mechanism. Recent share price weakness makes a good buying opportunity. Maintain BUY.

A strong start

Despite capital contribution recognised under the new MFRS 15 accounting standards being lower (1Q18: RM0.9m vs 1Q17: RM1.3m), revenue grew 21% yoy. This was on the back of higher gas volume sold and tariff which more than offset the increase in opex and effective tax rate. As a result, 1Q18 core earnings grew 23% yoy and made up 20% and 21% of ours and consensus expectations. We deem this to be inline as we expect some earnings respite particularly in 2H18.

QoQ decline due to cyclicality

On qoq basis, core earnings declined 47% despite higher gas tariff. The weakness was attributed to several factors: 1) capital contribution was higher in 4Q17 as per pre-MFRS 15 accounting standard, and 2) lower gas volume sold in 1Q18. We also note that effective tax rate was higher in 1Q18 at 27% (4Q17: 20.9%), contributing to the decline.

Possible growth in non-regulated business

The strong revenue growth continue to reflect the robust state of the Manufacturing sector while ongoing capital contribution and new pipes addition offers potential structural growth for Gas Malaysia going forward. Typically, gas volume from new greenfield pipes would see meaningful contribution after 1-2 years of installation as factory output is ramped up. Management guided sales of gas volume to grow by 6-6.5% in 2018 while it remains hopeful on prospects of its non regulated businesses.

Maintain BUY with RM3.90 TP

We believe recent share price weakness was largely due to concerns over sanctity of the IBR Framework and GCPT mechanism following the new federal administration. We take the view that the framework would continue to be observed by the new administration given the potential increase in subsidy bill for fuel pump price and reduced revenue collection from the GST holiday. Maintain BUY with an SOP derived TP of RM3.90.

Source: BIMB Securities Research - 30 May 2018

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