• 2Q20 core net profit of RM45m was above expectation, making up 57% of our previous forecast, and 51% of the consensus estimate. 6M20 gas sales volume was flat yoy at 97.4MMbtu
• We raise our 2020E EPS by 8% to factor in a smaller gas volume decline. We now expect the full-year volume to decline by 5% yoy for 2020 due to weaker business sentiment. Fine-tuning our 2021-22E EPS higher by 5%
• GMB declared a 4.25sen DPS, lower than 4.8sen in 2Q19. Maintain Hold, with higher DDM-based 12-month target price of RM2.73 (from RM2.62)

Gas Sales Volume Flat Yoy in 6M20

Gas Malaysia’s (GMB) 2Q20 net profit declined 9% yoy to RM45m, bringing 6M20 profit to RM93m (+2.6% yoy). This came in above our expectation at 57% of our full-year estimate, but in line with consensus at 51%. 2Q20 revenue declined 11% yoy as a result of the lower gas tariff and a 3% decline in gas volume. 6M20 volumes were relatively flat at +0.3% yoy, but GMB guided that 2H20 volume could weaken on a weaker business sentiment.

Sequential Sales Volume Declined 4%

Gas sales volume fell 4% qoq in 2Q20 resulting in revenue falling by 4%. In tandem with the sequentially lower revenue, plus higher interest expenses and lower interest income, net profit fell by 7%.

Hold for Its Yield, Raising Target Price to RM2.73

We raise our 2020 EPS by 8% to factor in a higher gas sales volume than previously, now projecting a 5% decline. We also raise our margin assumptions to take into account higher shipping margins that GMB is able to recognise. Our 2021-22 EPS are raised by 5%. We reiterate our Hold rating for its decent yield with a higher DDM-based target price of RM2.73 (from RM2.62). We continue to expect GMB to pay out an average 95% of its earnings, implying a 4.7% 2020E dividend yield.

Key Risks

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 - 14 Aug 2020