• 1Q19 core profit rose 2.4% yoy to RM41m on higher sales volume and tariff as well as lower effective tax rate; gains were partially offset by higher depreciation charge and interest expense.

• Overall, core earnings were broadly inline with ours at 23% but trailed consensus at 21%. We expect some earnings respite in coming quarters as revenue from Kinta Valley kicks in in 2H19.

• 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.

Moderate but healthy growth

1Q19 core earnings grew 2.4% to RM74m underpinned by higher sales volume and tariff while lower effective tax rate of 26% (1Q18: 27%) also aided growth. At the EBITDA level, profits grew 6% yoy to RM74m; a better reflection of its performance, in our view. However, gains were offset by higher depreciation charge and interest expense; the former could be due to recognition of completed pipes from the Kinta Valley project ahead of corresponding revenue kicking in.

QoQ decline on seasonality

On qoq basis, core earnings fell 1.3% which is in tandem with weaker sales volume attributed to seasonality factors, in our view. We also note that effective tax rate in 4Q18 was lower at 20% (1Q19: 26%).

Broadly inline with forecasts

Overall, 1Q19 core earnings were broadly inline with estimates at 23% but trailed consensus at 21%. We expect some earnings respite in 2H19 with full completion of the Kinta Valley project. GMB’s daily gas allocation for 2019 was raised to 552 mmscf/day at end 2018.

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 - 16 May 2019