Period  3Q13/9M13

Actual vs. Expectations  The 3Q13 results came in within expectations; with the 9M13 net profit of RM131.3m accounted for 74% of both our and market consensus full year forecasts.

Dividends  No dividend was declared as expected.

Key Results Highlights The 3Q13 net earnings rose 3% QoQ to RM46.2m despite a 2% decrease in revenue to RM583.7m, mainly due to lower taxation charge (effective tax rate of 22% vs. 24% previously).

 YoY, 3Q13 net profit rose 10% from RM42.0m recorded in 2Q12 while revenue grew 8% from RM542.4m, thanks largely to an 8% increase in gas volume sold. YTD, the 9M13 net earnings rose 12% to RM131.3m from RM117.4m on the back of a 9% hike in revenue to RM1.71b from RM1.57b as gas volume sold improved.

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 and FY14 estimates for now.

Rating Downgrade to UNDERPERFORM from MARKET PERFORM

Valuation  Price target maintained at RM3.41/share based on DCF.

 Share price has risen 16% in the past three months and 51% YTD to RM3.89 as at yesterday’s closing.

 Given that share price had raced ahead of its valuation, we are downgrading the stock to UNDERPERFORM from MARKET PERFORM.

Risks To Our Call A surprise increase in gas supply allocated by Petronas and widen in margin spread which in turn, positively impact its profitability.

Source: Kenanga