• Overview. 2Q19 core profit fell 1.8% yoy on losses at JV-co but rose 15% qoq on higher sales volume and lower effective tax rate.

• Key highlights. Receivables rose further in 2Q19, albeit at a slower pace (as LNG prices eased), implying under recovery of gas cost. This should lead to higher gas tariff in 2H19. Income from JV-co, GMEA, swung into losses due to unrealised forex losses.

• Against estimates: inline. 1H19 core earnings were flat but came broadly inline with ours and consensus forecasts at 49%/48%. The weak performance was due to: i) lower JV income after losses in 2Q19, ii) higher depreciation charge as certain NGDS projects have been completed.

• Dividend. A 4.8sen first interim DPS was declared which was higher than that in 2Q18 at 4.5sen; we expect 12.5sen DPS for 2019.

• Outlook. The under recovery portends to higher gas tariff in 2H19 which augurs well for margins. Furthermore, the indexed LNG price for Jul 2019 fell below the RM33/mmBtu GCPT threshold price, a year after it picked up in Aug 2018.

• Our call. Despite moderate growth expected in 2019, we reiterate BUY with an RM3.30 DCF-derived TP. Completion of NGDS provides structural sales volume growth while weak LNG prices could boost industrial adoption of gas for better efficiency.

Source: BIMB Securities Research - 20 Aug 2019