Gas Malaysia; Buy; RM3.55
Price target: RM4.05; GMB:MK

Gas Malaysia announced that it has entered into two joint ventures, namely: -

1) a 75:25 partnership with IEV Energy Sdn Bhd to provide 300,000mmbtu of compressed natural gas (CNG) to its customers, and

2) a 66:34 joint venture with Tokyo Gas Co Ltd, to design, build, install, operate and maintain combined heat power (CHP) system for its clients.

The development is in line with Gas Malaysia’s plan to expand into new markets to drive growth given the growing gas demand in
Malaysia. It has started talks with IEV Energy SB on CNG since 2012, with plans to deliver CNG to customers that are not connected by the existing pipeline system. Gas Malaysia has also been working on the CHP development to cater to new segments in the Northern and Central regions via building of new CHP plants to generate electricity and thermal energy with fuel source.

Gas Malaysia has yet to finalise the capex for the new ventures, which will likely be financed by its strong FY13 net cash balance of
RM294m. We expect minimal contributions in the near term from the new ventures, but the development may enhance the group’s
earnings by between 5-10% after FY15. We like Gas Malaysia for its resilient earnings, sustainable 4% yield and attractive growth driven by rising gas demand. Maintain BUY with DCF-derived TP of RM4.05/share based on WACC of 8%

Source: HwangDBS Research - 25 Feb 2014