9MFY21 core profit of RM180.0m topped forecasts again given the strong 3QFY21 earnings which were helped by higher-than-expected margin spread. 3QFY21 sales volume fell 11% on MCO 3.0 lockdown but quarterly adjusted revenue cap sustained its earnings. Going forth, while FY22 will be negatively affected by one-off prosperity tax, we remain optimistic on its earnings resiliency supported by a regulated framework. OP maintained at TP of RM3.00 on attractive dividend yield.

3QFY21 beat expectations. At 81% of house/street’s FY21 estimates, 9MFY21 core profit of RM180.0m beat expectations. This was due to better-than-expected gross margin which we believe was due to the margin spread coming in at the higher range of RM1.80/mmbtu- RM2.00/mmbtu on top of a higher retail margin as gas selling price rose. No dividend was declared in 3QFY21 as expected as it only pays half-yearly dividend.

A flattish sequential result. Despite sales volumes falling 11% QoQ to 47.3m mmbtu which was affected by MCO 3.0 lockdown, 3QFY21 core profit dipped only 1% to RM62.0m from RM62.3m attributable to revenue cap adjustment as volume fell, better retail margin as gas price rose as well as a share of associate profit of RM0.9m from a loss of RM1.4m in 2QFY21 which was affected unscheduled maintenance. On the other hand, revenue inched up 1% to RM1.38b as the surge in average gas selling price by 12% to RM30.03/mmbtu from RM26.85/mmbtu offset the 11% decline in sales volume.

Revenue cap led YoY results. 3QFY21 core profit rose 14% from RM54.3m, while revenue contracted 20%, largely due to higher recognition of revenue cap and lower interest expenses by 43% on lower OPR. The decline in revenue was contributed to an 11% drop in sales volume from 53.3m mmbtu while average gas selling price fell by 11% from RM33.65/mmbtu. YTD, 9MFY21 core profit jumped 23% to RM180.0m from RM146.9m which was due to sharp decline in sales volume in 1HFY20 on MCO 1.0 lockdown where the revenue cap was only adjusted in 4QFY20 whereas the lag in revenue cap was removed and adjusted quarterly instead in FY21. However, the low average gas selling price which was partly mitigated by 3% rise in sales volume led to a 20% decline in revenue in 9MFY21.

To end with a record FY21. Given the strong margin spread in 2QFY21-3QFY21, we believe this would continue into 4QFY21 and lead to a record year in FY21. However, the one-off prosperity tax will dent FY22 earnings while the market liberalisation which starts next Jan may normalise margin spread from high margin experienced in 2QFY21-3QFY21. As such, we upgrade FY21E estimates by 8% to reflect higher margin spread but cut FY22E earnings for the one-off prosperity tax while keeping margin spread assumption of RM2.20/mmbtu. Accordingly, NDPS is also adjusted proportionally based on unchanged payout ratio of 90%.

Still an OUTPERFORM. We remain positive on its long-term earnings prospects given its resilient profitability which is supported by a regulated framework while we see minimal impact from the gas industry liberalisation given its track record. As such, GASMSIA remains an OUTPERFORM with unchanged DCF-driven target price of RM3.00, which is also supported by an attractive dividend yield of c.6%. Risk to our call is a lower-than-expected margin spread in the future.

Source: Kenanga Research - 22 Nov 2021