GASMSIA guided for gas sales volume growth of 4% to 5% in FY24, driven largely by strong demand from the rubber glove, consumer product and F&B sectors. We fine-tune up our FY24- 25F net profit forecasts by 1% each, tweak our TP up to RM3.59 (from RM3.55) but maintain our MARKET PERFORM call. The stock offers an attractive yield of >6%.

We came away from GASMSIA’s post-1QFY24 results briefing feeling positive about its earnings outlook. The key takeaways are as follows:

1. It guided for gas sales volume growth of 4% to 5% in FY24 (vs.our assumption of 4%), driven largely by strong demand from rubber glove, consumer product and F&B sectors. More specifically, it guided for gas sales volume growth of 5% to the rubber glove sector in FY24.

2. It shared that an 8% YoY rise in 1QFY24 core net profit was largely due to RM9m in reversal of gas cost accrual, despite a 23% plunge in it top line due to a 29% decline in Malaysia Reference Price (MRP).

3. While its overall gas sales volume fell slightly by 1.3% QoQ, its gas sales volume to the rubber glove industry rose 7.5% to 8.1m GJ in 1QFY24 from 7.5m GJ in 4QFY23, a third conservative quarterly growth in the sector, having bottomed at 6.9m GJ in 2QFY23.

4. GASMSIA has budgeted RM320m CAPEX in FY24, out of which RM50m is earmarked for a new 190km gas pipeline.

Forecasts. We fine-tune FY24-25F net profit forecasts by 1% each.

Valuations. Similarly, we tweak our DCF-derived TP up to RM3.59 (from RM3.55) based on unchanged WACC of 6.5% and TG of 2%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by use (see Page 5).

Investment case. We like GASMSIA for its: (i) strong market position, being a key natural gas retailer in Malaysia, (ii) strong earnings visibility underpinned by its ability to retain customers, typically, via 3-year contract, and (iii) strong free cash flow generation, anchoring a dividend yield of >6%. However, its valuations are fair at the current level. Maintain MARKET PERFORM.

Risks to our recommendation include: (i) regulatory risk, (ii) volatility in margin spread of non-regulated business, and (ii) economic slowdown hurting demand for gas.

Source: Kenanga Research - 28 May 2024