Period

1Q15

Actual vs. Expectations

At 24% of both house and street’s full-year estimates, the 1Q15 net profit of RM28.5m came within expectations.

Dividends

No dividend was declared in 1Q15 as expected.

Key Results Highlights

1Q15 net profit surged 22% QoQ to RM28.5m from RM23.3m despite turnover dipping 2% over the quarter to RM761.6m from RM780.5m. This was attributable to lower billing days due to CNY plus the shorter month of February. As such, this led to a lower usage of LNG component, which brought down its purchase cost, thus resulting in a better profit margin spread. In addition, it reported a share of loss from its JV, which widened to RM1.7m from RM0.2m as the JV incurred upfront loan interest.

On a YoY comparison, 1Q15 net profit plunged 32% from RM41.6m in 1Q14, although revenue jumped 31% over the year. The higher revenue was due to the new tariff rate of RM19.77/mmbtu, effective Nov 2014, from RM16.07/mmbtu. However, the higher tariff rate did not translate into higher profitability due to our profit margin spread estimate of RM1.47/mmbtu from RM2.02/mmbtu previously, which brought its bottom-line lower.

Outlook

Although there was an improvement in 1Q15 results, mainly due to shorter billing days, which led to better margin spread, the question remains how it would solve the margin spread issue as higher business volume will definitely drive the demand for LNG higher, thus higher blended purchase price.

For now, we keep our margin spread assumption of RM1.47/mmbtu on the basis of 9.4% LNG blended component. Changes To

Forecasts

While keeping FY15 estimates unchanged, we introduce FY16 estimates where we expect earnings to grow slightly higher by 1.1% as we assumed the same assumption of RM1.47/mmbtu margin spread with a total gas supply of 492mmscfd.

Rating

Maintain UNDERPERFORM

Valuation

We keep our price target unchanged at RM2.22/DCF share.

Risks

To Our Call

A wider margin spread.

Source: Kenanga Research - 8 May 2015