Period     1Q13

Actual vs. Expectations     The 1Q13 results came in within expectations with a net profit of RM40.1m, accounting for 22.5% and 22.6% of our full-year estimate and that of the market consensus. 

We consider the results to be in line as 1Q is seasonally a low quarter while a strong 2H13 is expected on the back of new gas supply from the Melaka RGT in Jul-13. 

Dividends    No dividend was declared as expected. 

Key Results Highlights    The 1Q13 net income contracted 12% sequentially to RM40.1m from RM45.5m in 4Q12 while revenue dipped 3% for the same period to RM535.4m from RM552.0m previously. The decline in earnings was mainly due to a shorter billing month in February coupled with the CNY break.

However, the 1Q13 net profit leapt 16% YoY from that of RM34.5m in 1Q12 as revenue rose 6% over the year from RM506.6m previously. This was mainly credited to a 4% higher volume of gas sold.  

Outlook    The new 40MMScdf gas supply from the Melaka RGT in Jul-13 will be the earnings catalyst for the company, which will bring a c.10% increase in the gas supply.

The subsequent 30MMScdf and 40MMScdf additional gas supplies from the same Melaka RGT in Jan 2014 and Jan 2015 respectively will ensure consistent earnings growth post-2013.

Changes To Forecasts   No changes to our FY13E-FY14E forecasts for now. Note that our assumption of new gas supply from the Melaka RGT is in Apr-13. Assuming the profit margin spread is maintained at RM2/mmbtu, the start of the RGT in Jul-13 would reduce our estimates by c.3%. However, we are keeping our estimates for now since the buying/selling gas prices have yet to be formularised. 

Rating  MAINTAIN OUTPERFORM

Valuation     Given the change in risk profile, we have lowered tariff, this will lead to a lower margin spread and in turn, negatively impact the company’s profitability.

Risks    Should the government decide to reduce the gas the WACC assumption to 8.2% from 9.2% previously. Thus, our new price target is now at RM3.39/DCF share from RM2.94/DCF share previously. The stock offers a total upside of 9%. 

Source: Kenanga