1HFY21 core profit of RM118.0m beat expectations on stronger-than-expected margin as opposed to our conservative margin assumption. Sales volume fell slightly by 2% QoQ on MCO 3.0 lockdown but with revenue cap accrual in 2QFY21 which would avoid a lumpy 4Q in the future. Going forth, we remain optimistic on its earnings resiliency supported by a regulated framework. OP reaffirmed at a higher TP of RM3.00 with attractive yield.

Another solid quarter, in 2QFY21. At 57%/54% of house/street’s FY21 estimates, 1HFY21 core profit of RM118.0m beat expectations on a 12% sequential hike in 2QFY21 core profit to RM62.3m. The deviation is attributable to our conservative margin spread + retail margin of RM2.10/mmbtu, coupled with lower interest expense. To recap, the guided margin spread is RM1.80/mmbtu-RM2.00/mmbtu with 1% retail margin on gas selling price. Meanwhile, it declared a first interim NDPS of 4.8 sen (ex-date: 01 Oct; payment date: 28 Oct) vs. 4.3 sen paid in 2QFY20.

Sequential results boosted by revenue cap. Despite total sales volume falling 2% QoQ due to MCO 3.0, 2QFY21 core profit jumped 12% to RM62.3m from RM55.6m while revenue leapt 19% to RM1.38b from RM1.15b previously. The jump in earnings was largely due to the accrual of revenue cap in view of the fall in sales volume. To recap, it reported c.RM30m revenue cap in 4QFY20 and management stated then that any adjustment of revenue cap will only be done in the final quarter. However, in this quarter, management had decided to accrue revenue cap quarterly to avoid a lumpy earnings in 4Q of each year. Meanwhile, the jump in revenue was due to higher average tariff by 21% to RM26.85/mmbtu. On the other hand, share of JV results turned red with loss of RM1.4m from profit of RM0.2m due to the delay of revenue billing on MCO 3.0 lockdown.

A better YoY results from the MCO 1.0 hit last year. Given the revenue cap accrual and higher sales volume, 2QFY21 core profit jumped 39% YoY to RM62.3m from RM44.7m previously as sales volume recovered to 53.3m mmbtu from 47.6m mmbtu last year. However, revenue tumbled 11% owing to lower average tariff of RM26.85/mmbtu as opposed to RM33.65/mmbtu last year. Similarly, YTD 1HFY21 core profit grew 27% to RM118.0m from RM92.6m. However, revenue fell 20% to RM2.53b from RM3.15b in 1HFY20 due to the same reasons as mentioned above. On the other hand, interest expense fell significantly from last year partly on lower OPR as interest cost declined 42% to RM2.4m in 2QFY21 and 27% to RM5.3m in 1HFY21.

Volume growth to lead earnings higher. With IBR framework to guide earnings certainty and a quarterly review on revenue cap, to track demand growth as well as avoiding lumpy 4Q earnings, 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. On the other hand, given the solid results in the past three straight quarters, we believe our total margin spread of RM2.10/mmbtu is too conservative. As such, we raised our total margin spread assumption to RM2.20/mmbtu. This compels us to upgrade FY21-FY22 estimates by 8%-5% while NDPS is also upgraded proportionally based on unchanged payout ratio of 90%.

OUTPERFORM on earnings certainty and attractive yield. Post earnings revision, our new DCF-derived TP is upped to RM3.00 from RM2.91 previously. We remain positive on its long-term earnings prospects given its resilient earnings profile which is supported by a regulated framework. As such, the stock remains an OUTPERFORM which is also supported by an attractive dividend yield of >5%. Risk to our call is a lower-than-expected margin spread in the future.

Source: Kenanga Research - 18 Aug 2021