• Overview. Gas Malaysia 1Q22 revenue declined 8% qoq to RM1.7bn mainly due to lower volume of natural gas sold during the quarter (1Q22:53.9GJ. 4Q21:56.9GJ). However, core earnings rose 32% qoq to RM91m mainly due to better shipping margin, boosting its EBITDA margin to 8.1% (4Q21: 6.1%). On a yoy basis, revenue rose 54.8% in tandem with higher average natural gas selling price and capacity reservations by shippers for the utilization of the Natural Gas Distribution System (“NGDS”) in 1Q22.

• Key highlights. In 2022, the GMB distribution tariff remains at RM1.715/GJ/day. No revenue cap adjustment is recognized in 1Q22 as the group’s performance is over-recovery.

• Against estimates: Above. 1QFY22 core profit of RM91m was above our and consensus’ forecast at 37.7% and 36.9% respectively.

• Outlook. Management expects to ramp up its RP1 CAPEX spending to c.RM290m in 2022 (2021: RM118m). This includes Kedah Rubber City, Chuping Valley (PPP with Perlis state), Padang Meha, Serendah and Proton City which will boost its regulated earnings in coming years. In the gas shipping segment, the company expects margin to be relatively stable as preceding year owing to most of its customers have already secured the utilization of NGDS.

• Earnings revision. We revised our FY22F/FY23F/FY24F earnings by 35%/32%/33% to RM351/RM358m/RM365m (see Table 3) as we revise higher our shipping margin to 3% from 1.5%.

• Our call. Maintain BUY on Gas Malaysia with higher TP of RM4.08 (from RM3.37) which implies 10.1x FY22F P/E. We like Gas Malaysia due to i) its ability to sustain recurring income from pipelines asset amidst market liberalization, ii) steady distribution tariff, and iii) stable shipping margin.

Source: BIMB Securities Research - 13 May 2022