Period  4Q13/FY13

Actual vs. Expectations The FY13 results generally met expectations with the core net profit of RM171.4m coming in at just 4% below both our estimate and market consensus.

Dividends  A final single-tier DPS of 7.36 sen was declared in the quarter, bringing the YTD NDPS to 13.36 sen. The 13.36 sen NDPS, which implies a 97% payout of its FY13 earnings, is above our projection of 10.72 sen.

Key Results Highlights FY13 net earnings rose 5% to RM171.4m from RM162.8m on the back of a 9% hike in revenue to RM2.32b from RM2.13b, mainly due to higher volume of gas sold, which expanded by 8.5%, after securing extra 40MMScfd gas supply from the Melaka RGT in July 2013.

 The 4Q13 net profit contracted 13% QoQ to RM40.2m, despite a 4% increase in revenue to RM604.2m, mainly due to higher operating cost as reflected in the lower gross margin of 9.9% compared to11.3% previously.

 Likewise, the higher operating cost also impacted adversely its earnings on a YoY basis comparison, as the 4Q13 net income declined by 12% to RM40.2m from RM45.5m. This is despite the higher revenue which grew 9% to RM604.2m from RM552.0m as sales volume rose 9.1% over the period.

Outlook  FY14 is expected to be another strong year with full-year earnings impact from the 40MMScfd gas supply which started from July 2013 and another new additional 30MMScfd commencing Jan 2014 from the Melaka RGT. The last portion of the 40MMScfd additional gas supply from the same RGT will be coming on-stream in Jan 2015, which will ensure consistent earnings growth in the future.

Changes To Forecasts No changes to our FY14 estimates and at the same time we introduced FY15 forecasts where net profit is expected to grow by 9%. Our FY15 assumptions include the new 40MMScfd gas supply to be effective Jan 2015 while the margin spread maintained at RM2.02/mmbtu which is similar to

FY14 for both piled gas as well as imported LNG.

Rating Maintain UNDERPERFORM

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

Risks To Our Call A surprise increase in gas supply allocated by Petronas and wider margin spread.

Source: Kenanga