No Surprises

GMB’s 1Q18 results were broadly in line with expectations with net profit accounted for 22% of our and consensus full-year estimates. Both revenue and earnings saw increases on the higher gas sales volume and natural gas tariff. Nevertheless, earnings growth will likely normalize this year given the high margin spread base recorded in 2017. Maintain HOLD with a slightly higher TP of RM3.00.

In Line With Expectations

1Q18 saw revenue and earnings grow by 21% and 23% respectively on the back of the 9% higher gas sales volume and natural gas tariff. Operating margin was relatively flat yoy due to higher operating expenses. 1Q18 earnings were broadly within expectations, accounting for 22% of our and consensus full-year estimates.

Lower Earnings Qoq Impacted by Weaker Associate and Higher Tax

Sequentially, the 4% drop in gas sales volume led to revenue declining by 2.4%. The operating margin declined 2.7ppts on higher operating expenses while the bigger net profit decline of 48% was due to weaker associate earnings and higher taxes. Associate contribution declined 70% due to the fullyear profit recognition of the CHP business in the previous quarter.

Maintain HOLD

We raised our DDM-based 12-month TP to RM3.00 after rolling forward our valuation to 2019E and tweaking our 2018-20 EPS forecasts by 0.6-3.5%. GMB paid out 86% of its profit in 2017, in line with our dividend payout assumption of 85% going forward. Maintain HOLD.

Risks to Our Call

Key upside risks include higher-than-expected sales volume and a better margin spread. Downside risks include an economic recession affecting demand for natural gas.

Source: Affin Hwang Research - 30 May 2018