Period

2Q15/1H15

Actual vs. Expectations

At 46%/47% of house/street’s full-year estimates, the 1H15 net profit of RM62.2m came in within expectations.

Dividends

First interim NDPS of 3.5 sen was declared, (exdate: 27 Aug; payment date: 15 Sep) which was within expectation, vs. 5.0 sen paid in 2Q14.

Key Results Highlights

2Q15 net profit rose 18% QoQ to RM33.7m from RM28.5m with 4% rise in revenue to RM795.0m from RM761.6m, thanks to higher gas volume as 1Q15 was a quarter with CNY and the shorter month of Feb. As margin spread was fixed at RM1.58/mmbtu, the higher business volume drove bottomline higher. Meanwhile, after three quarters of losses, the share of JV results turned profitable to RM0.8m from a loss of RM1.7m previously.

Despite revenue rising 17%, 2Q15 net profit fell 31% YoY from RM48.9m. Like-wise, 1H15 net profit declined 31% to RM62.2m from RM90.5m in 1H14 although revenue leapt 24% over the period. The fall in bottomline was mainly due to the higher margin spread last year at RM2.02/mmbtu while the rise in revenue was attributable to higher tariff rate of RM19.77/mmbtu, effective Nov 2014, from RM16.07/mmbtu previously.

Outlook

With the profit margin spread being fixed at RM1.58/mmbtu, earnings visibility is expected to be high as opposed to the 4Q14-1Q15 period where earnings were hit by margin compression as business volume increased which meant that the expensive LNG component increased.

Meanwhile, the 5-year RM700m-RM800m capex on pipeline expansion shows that GASMSIA is confident of securing additional new gas supply from its current 492mmscfd guaranteed supply from Petronas. This could be a new earnings catalyst. Changes To

Forecasts

FY15-FY16 estimates remain unchanged.

Rating

Upgrade to OUTPERFORM from MARKET PERFORM

Valuation

Since the 1Q15 result was released three months ago, share price has fallen 19%, partly attributable to the heavy sell-down in the past one week on the overall market.

We believe it is oversold given the better earnings visibility as the margin spread is now being fixed at RM1.58/mmbtu. As such, we upgrade GASMSIA to OUTPERFORM from MARKET PERFORM with unchanged price target of RM2.68/DCF share.

Risks To Our Call

A sudden change in cost-pass through mechanism with downward revising in margin spread.

Source: Kenanga Research - 14 Aug 2015