Period  4Q14/FY14

Actual vs. Expectations  The FY14 net profits of RM167.6m came in 12% off our estimate, as well as market consensus, no thanks to a sharp decline in 4Q14 which saw the earnings contracted more than half sequentially.

 It was stated in the results note that the poorer set of results was due to higher LNG price. Besides this, we believe it may be partly due to a higher proportion of LNG mix as GAMSIA gets additional supply from the Melaka RGT.

Dividends  A 4 sen NDPS was declared, bringing FY14 NDPS to 9.0 sen vs. our assumption of 11.5 sen.

Key Results Highlights  4Q14 net earnings plunged 57% QoQ and 42% YoY to RM23.3m from RM53.8m and RM40.2m, previously, although revenue rose 6% and 29% respectively.

 FY14 net profit dipped 2% to RM167.6m from RM171.4m in FY13 although revenue grew 20% for the same period. This was mainly due to a higher LNG price that hit 4Q14 earnings. So far, there were two gas selling price adjustments during the year: (i) raised to RM19.32/mmbtu from RM16.07/mmbtu effective May 2014, and (ii) raised to RM19.77/mmbtu from RM19.32/mmbtu effective Nov 2014.

 The tariff revision was the main reason for the higher revenue achieved in FY14 in addition to an additional 30mmscfd gas supply effective Jan 2014. However, this does not work out for the bottom-line as the LNG portion of the supply increased. There was no disclosure of gas purchase price in Nov 2014 as opposed to May 2014 where the RM17.31/mmbtu purchase price was based on 6% actual LNG blended.

 Assuming the Nov 2014 purchase price was the same as the May 2014 structure of: (i) regulated gas price of RM15.55/mmbtu, and (ii) RM44.88/mmbtu for LNG price, but with a higher LNG blended to 9.4% from 6.0% in proportion to the increase of gas supply from the Melaka RGT, margin spread for Nov 2014 revision could have reduced to RM1.47/mmbtu from RM2.02/mmbtu previously.

Outlook  We believe that our earlier fear of margin compression due to higher LNG blended price may have materialised. With the fixed volume of 382mmscfd for regulated gas price, the additional gas supply from the Melaka RGT will definitely change the cost structure thus compressing margin further. As such, the higher business volume may not be enough to cover the higher purchase price since the LNG market price is almost three times higher than the regulated gas price.

Changes To Forecasts  Assuming the gas selling price to stay at RM19.77/mmbtu and our estimated purchase price of RM18.30/mmbtu based on the 9.4% LNG blended stated above, GASMSIA would make a margin spread of RM1.47/mmbtu. Based on this basis, we trim our FY15E by 42%.

 We are holding back new assumptions for FY16 pending further clarification with management.

Rating Downgrade to UNDERPERFORM from MARKET PERFORM previously

Valuation  With assumption of margin spread of RM1.47/mmbtu and a total gas supply of 492mmscfd, we derived a new target price of RM2.22/DCF share from RM3.54/DCF share previously.

Risks To Our Call  A wider margin spread. 

Source: Kenanga