• 1Q21 Results Exceeded Our and Consensus Full-year Estimates
• Gas sales volume remained healthy, posting a 9% yoy growth. However, revenue fell because of lower gas tariffs
• Reiterate our Buy rating and raise our DDM-derived target price to RM3.25 (from RM3.18). Dividend yield at 6.2% is attractive

Gas Sales Volume Grew 9% Yoy

GMB’s 1Q21 revenue fell by 28% yoy to RM1.1bn due to the revised lower gas tariff during the quarter, which had no impact on margins. Gas sales volume, however, rebounded strongly, growing 9% yoy, which was partially impacted by the MCO imposition last year. Nevertheless, core net profit increased 16% yoy on the back of better spreads, supported by shipper function margins. The non-regulated business is showing signs of stability, having reported its third consecutive quarter of profit, which is rather commendable. Though 1Q21 earnings accounted for 25-26% of our/consensus full-year forecasts, we deem the results to be ahead of expectations as margin positively surprised. While 1Q revenue made up only 17% of our current full-year forecast, we expect remaining quarters to make up for the shortfall on higher gas tariff revision, done on a quarterly basis.

Gas Sales Volume Fell by a Marginal 1% Qoq

Sequentially, net profit declined 28% to RM56m on the back of the lower gas tariffs while volumes fell by a marginal 1%. This was partly mitigated by lower gas costs, resulting in margins expanding by 1.5ppts. Interest income also normalized due to the one-off adjustment in the previous quarter.

Raise Our EPS, and Maintain Buy Rating

We raise our forecasts by 7% to factor in better margins, and raise our DDM-based 12- month of target price to RM3.25 (from RM3.18), also adjusting for lower terminal growth to 2.5%. We maintain our Buy recommendation, with 20% upside and an attractive 2021E dividend yield of 6.2% (based on a 90% dividend payout assumption). Current PER valuation at 15x, which is trading at -1SD level, is deemed attractive, in our view.

Key Risk

Key downside risks include weaker-than-expected gas sales volume should a strict Movement Control Order (MCO) lockdown materialize, which will have an adverse impact on volume; negative margins surprise and non-regulated assets swinging back into losses.

Source: Affin Hwang Research - 6 May 2021