Gas Malaysia Berhad (GMB) announced that effective 1  Nov 2014, the average natural gas tariff for the non-power sector will increase by 2.3% to RM19.77/MMbtu from RM19.32/MMbtu. (Source: Bursa Malaysia) Comments: We are neutral on this development, as we do not expect a material  change in  earnings  in the  short  term,  since the  revised higher tariff will be accompanied by an upward adjustment of the gas purchase price from PETRONAS. In addition, the quantum of increase is relatively small.  Recall  that  the  previous  increase  was  on  1  May  2014  when  the tariff increased by 20.2%.

The gas purchase price takes into account the blended price of regulated domestic natural gas as well as the Liquefied Natural Gas (LNG) market price  based  on  the  volume  to  be  purchased  by  Gas  Malaysia.  Higherthan-expected  gas  volumes  sold  may  be  detrimental  but  only  to  nearterm earnings, as we gather from management that Gas Malaysia  will be allowed  a  clawback  in  following  year’s  gas  volume  agreement  with PETRONAS. We maintain REDUCE on GMB with an unchanged PT of RM3.35.

Source: Affing Hwang Capital Research - 30 Oct 2014