Period     2Q13/1H13

Actual vs. Expectations   The 2Q13 results came in within expectations with net profit rising 12% QoQ to RM45.0m. YTD, this brought its 1H13 net profit to RM85.1m, which accounted for 48% of both our as well as market consensus full-year forecasts. 

Dividends    A 6.0 sen NDPS was declared in 2Q13 (ex-date: 16 Aug; payment date: 17 Sep) which is higher than the 5.0 sen paid in 2Q12.  

Key Results Highlights   2Q13 net earnings rose 12% to RM45.0m from the seasonally weak 1Q13 (RM40.1m) as revenue grew 11% sequentially to RM593.8m from RM535.4m as sales volume improved. The weaker 1Q13 results were mainly due to a shorter billing month in February coupled with the CNY break.

YoY, 2Q13 net profit hiked up by 10% from RM40.8m last year while revenue leapt 13% from RM524.3m on a 13% increase in gas volume sold. YTD, 1H13 net income rose 13% to RM85.1m from RM75.4m on the back of a 10% hike in revenue to RM1.13b from RM1.03b due to a 9% increase in gas volume sold.

Outlook    The new 40MMScdf gas supply from the Melaka RGT in Jul-13 will be an earnings catalyst, which will bring 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 FY13-FY14 estimates for now.

Rating   Downgrade to MARKET PERFORM from OUTPERFORM

Valuation     Given the change in risk profile in the recent share price run-up, we have lowered the WACC assumption to 8.1% from 8.2% previously. 

Thus, our new price target is now at RM3.41/DCF share from RM3.39/DCF share   In view of the limited upside to our price target, we are downgrading the stock to MARKET PERFORM from OUTPERFORM.

Risks    Should the government decide to reduce the gas tariff, this will lead to a lower margin spread and in turn, negatively impact its profitability. 

Source: Kenanga