Despite a seasonally low quarter, 1QFY21 results were fairly solid with core profit rising 16% YoY to RM55.6m which matched expectations. Sales volume, which has already normalised to pre-COVID-19 level since 4QFY20, is expected to lead earnings growth. Coupled with expected margin spread, this ensures earnings certainty. As such, we remain optimistic on its long-term earnings prospects. OP maintained at unchanged DCF-derived TP of RM2.91.

A solid 1QFY21 results which met expectations, with core profit rising 16% YoY to RM55.6m which made up 27%/26% of house/street’s FY21 estimates. Meanwhile, there is no dividend declared for 1QFY21 as expected as it usually pays half-yearly dividend. On the other hand, it had declared on 30 Mar, a final NDPS of 5.4 sen for FY20 (ex-date: 02 July; payment date: 22 July), totalling FY20 NDPS to 15.1 sen.

Earnings boosted by volume growth. YoY, 1QFY21 core profit jumped 16% to RM55.6m from RM47.9m in 1QFY20 despite revenue falling 28% to RM1.15b from RM1.61b previously. The jump in earnings was largely due to a 9% hike in total gas sales volume to 54.3m MMBTU from 49.8m MMBTU where the start of MCO 1.0 had a two-week impact on 1QFY20 volume while margin spreads were kept at RM1.80-2.00/mmbtu coupled with retail margin which was based on c.1% of gas selling price. The sharp decline in revenue was attributable largely to lower average tariff by 34% to RM22.14/mmbtu in 1QFY21 as opposed to RM33.65/mmbtu for the entire year of 2020. Meanwhile, associate income turned profitable at RM0.2m from loss of RM0.2m.

Weaker sequential results in the absence of revenue cap adjustment. Without the c.RM30m revenue cap adjustment in 4QFY20, 1QFY21 core profit contracted 27% QoQ to RM55.6m from RM76.6m in the preceding quarter while revenue plummeted 37% to RM1.15b from RM1.82b on the back of sharp decline in average tariff by 34% as mentioned above. On the other hand, the weakened revenue and earnings were also partly due to a 2% decline in sales volume to 54.3m MMBTU from 55.2m MMBTU on seasonality. Meanwhile, share of associate income fell to RM0.2m from RM0.7m previously.

Volume growth to lead earnings higher. With sales volume back to pre-COVID-19 level since 4QFY20 and any short-fall of demand adjusted under revenue cap which is the same for FY20, GASMSIA’s earnings are fairly resilient. As such, it will be a volume play with management guiding GDP-like demand growth for the future. We have forecasted 3.8% demand growth in FY21 and for beyond, a flat 3% growth. Our margin spread is maintained at RM2.10/mmbtu while dividend pay-out ratio is 90%. Meanwhile, management is exploring new opportunities under TPA to expand its non-regulated earnings base, but they are still at preliminary stage with no timeline.

OUTPERFORM maintained. Post 1QFY21 results, we keep our estimates unchanged. We remain positive on its long-term earnings prospects given the margin spread of above RM2.00/mmbtu that will keep its earnings growing on the back of volume growth. As such, the stock remains an OUTPERFORM with unchanged DCF-derived TP of RM2.91, which is also supported by attractive dividend yield of >5%. Risk to our call is a lower-than-expected volume growth in the near term.

Source: Kenanga Research - 6 May 2021