• Overview. Gas Malaysia Berhad (GMB) revenue rose by 9.7% QoQ and 36.7% YoY in 1Q23 to RM2.4bn propelled by higher average natural gas selling price (MRP 1Q23:cRM58.0/MMBtu versus MRP  1Q22:RM33.9/MMBtu). However, this was mitigated by lower volume of natural gas sold which dropped c.17.0% YoY largely due to the pullback from rubber gloves sector. Concurrently, core earnings increased by 4.1% YoY to RM95mn owing to higher gross profit and finance income.

• Against estimates: Inline. 3M23 core profit of RM95mn was in line with our forecast, accounting 27.1% and consensus at 26.4% full year estimates respectively.

• Dividends. No dividend was declared as GMB usually pays its dividend every half of the year.

• Earnings revision. We upgraded our FY23F earnings by 3% though downgrade for FY24F and FY25F by 17% and 19% after incorporating a revision in our sales volume growth and Malaysia Reference Price  (MRP) computation.

• Outlook. We expect earnings to remain elevated for at least another incoming quarters in line with higher MRP (4 months lag). We reckon a muted impact from rubber gloves sector as well due 1) GMB still holds the biggest market share in gas distribution segment as the group is the sole pipeline owner (NGDS) in Peninsular Malaysia and  2) declining volume to be offset by the expansion of customers from consumers product, electrical and electronics and automobiles  sector post economic re-opening. Note that most of GMB’s contract is for a 3-year period. For capex, the group is expected to allocate about RM800mn – RM850mn in RP2 and RM300mn - RM350mn in  2023.

• Our call. Downgrade to HOLD on Gas Malaysia with a lower TP of  RM3.31 (from RM3.67) which implies 11.4x FY23F P/E.

Source: BIMB Securities Research - 19 May 2023