Gas Malaysia (GMB) announced that the government has revised the natural gas tariff for the non-power sector, which will be effective 1 Jan 2016. In this revision, the average gas tariff will be hiked by 17.11% from RM21.80/MMBtu to RM25.53/MMBtu. There will be no change to the selling prices for residential customers, which is under category A. The revision is in-line with the national rationalisation plan, whereby the price of piped gas will be adjusted bi-annually with the implementation of the gas cost pass through (GCPT) mechanism. (Source: Bursa Malaysia)

Comment: While the gas tariff hike doesn't come as a surprise to us, the 17.1% hike in average gas tariff seems steep relative to the previous hike of 10.3% in Jul 2015. Nevertheless, the tariff hike will be earnings neutral for GMB, as the group's gas purchase cost will also be adjusted upwards accordingly (i.e. the benefit accrues to PETRONAS). We maintain our BUY rating on GMB with an unchanged RM2.58 TP, based on 22x FY16 P/E.

Source: Affin Hwang Capital Research - 23 Dec 2015