• Overview. 3Q19 core profit rose 2.4% yoy but fell 11% qoq due to higher opex and losses at JV companies. 2Q is also typically a strong quarter (ex-cap con in 4Q for pre-MFRS16 periods).

• Key highlights. Losses at JV-co, GMEA, was due to unrealised forex losses. Else, we understand that the operation is profitable.

• Against estimates: below. 9M19 core earnings grew marginally by 0.8%; operational gains were offset by higher depreciation and finance expenses, and losses from JV-co. Overall, it trailed ours and consensus estimates at 72% and 70% respectively.

• Outlook. We pare down our 2019-21F estimates by 2-8% mainly on 9M19 cost pressures (Table 2). We believe GMB’s medium-term prospects are fairly intact; the DistCo should see structural growth from new pipes though we expect the ShipCo to face competition over the medium to longer term. As market liberalisation gets underway, we expect its position as the incumbent would erode with new entrants in the market. Our numbers have yet to reflect fully the impact from liberalisation within the ShipCo space.

• Our call. Downgrade to HOLD (from Buy) with a lower SOP-derived TP of RM3.00 (Table 3) from RM3.30 previously. Our TP values GMB at 21.6x 2019F PE before easing to 20.5x 2020F.

Source: BIMB Securities Research - 15 Nov 2019