• 4Q18 core profit fell 32% yoy mainly due to distortion from a one off GCPT adjustment made in 4Q17. For the full year, core profit rose 2.5% to RM171m which trailed our estimates at 91%.

• Sequentially, 4Q18 earnings improved marginally by 1.6% qoq on lower effective tax rate which eased to 20% (3Q18: 25%).

• A 4.5sen interim DPS was declared, bringing total DPS declared to 9sen. While it fell short of our 12.2sen DPS expectations, we note that the board typically declares a final DPS during its AGM.

• Despite the weaker-than-expected results, we remain positive on GMB’s outlook owing to its capital expansion during RP1 which include the major Kinta Valley pipeline development.

• Maintain BUY with RM3.30 DCF-derived TP which values the stock at 23x 2019F before easing to 22x. We believe the stock is one of the best proxies for exposure to Malaysia’s industrials.

Distorted by 4Q17 one off adjustment

The weak 4Q18 performance was distorted by a one-off adjustment relating to the GCPT in 4Q17; EBITDA margin was unusually high at 6.5% then. Further, we also believe 4Q18 earnings were impacted by higher opex, possibly on losses at its non-regulated businesses, while interest expense rose due to higher gearing. These were partly offset by lower effective tax rate which resulted in 32% yoy core profit decline. Our core profit also adjusts for a one-off writeback in trade receivable amounting RM9.4m.

Sequential improvements

On qoq basis, earnings improved marginally by 1.6% despite lower core EBITDA (-2.9%). This was mainly due to the lower effective tax rate in the quarter (3Q18: 25.3%).

Missed estimates

Over the 12-month period, core profit rose 3% to RM171m (based on 2017 post-MFRS15 figures) which was short of our estimates at 91% but broadly inline with consensus. The shortfall could be due to lower-than expected sales volume.

Moderate growth ahead

Management guided 4-5% sales volume growth in 2019. We assumed lower at 3.5% in tandem with slower economic growth anticipated. Its daily gas allocation for 2019 was raised to 552 mmscf/day at end 2018 from 522mmscf/day.

Maintain BUY with RM3.30 TP

Despite moderate growth expected, we remain advocates of GMB; BUY with RM3.30 DCF-derived TP. We believe the stock remains one of the best proxies for exposure to Malaysia’s Industrials.

Source: BIMB Securities Research - 15 Feb 2019