Gas Malaysia (GMB) core net profit grew 14% yoy to RM48.1m in 2Q18 on the back of a 17% increase in revenue. The latter was underpinned by a 5% yoy increase in natural gas sales volume coupled with an upward revision in the natural gas tariff. We reiterate our HOLD call with no changes to our target price at RM3.00.

In Line With Expectations

2Q18 net profit came in at RM48.1m (+19.6% qoq, +14.3% yoy), bringing the cumulative 1H18 net profit to RM88.3m (+18.2% yoy), which was in line with our and consensus full-year estimates (47% and 48% respectively). This was on the back of a higher gas sales volume, which grew by 7% to 94.3m MMbtu in 1H18, coupled with an upward revision in the gas tariff. GMB’s gross profit margin was relatively flat yoy in 1H18 at 5.0%.

2Q18 Earnings Driven by Higher Volume and Tariff Increase

2Q18 revenue grew 17% yoy to RM1,503.2m (+4.7% qoq, +16.8% yoy), driven by a higher gas sales volume (+5% yoy) and an upward revision in the natural gas tariff. The gross margin inched up 0.2ppts yoy to 5.3% in 2Q18.

Maintain HOLD

2Q18 declared a slightly higher 4.5-sen interim dividend compared to 4 sen in 2Q17. GMB continues to offer a decent 4.2% 2018E dividend yield based on a minimum payout policy of 75%. As the 2Q18 results are satisfactory, we maintain our earnings forecasts and DDM-based 12-month target price at RM3.00, which implies a 20.5x forward PER. Maintain HOLD.

Risks to Call

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

Source: Affin Hwang Research - 9 Aug 2018