INVESTMENT HIGHLIGHTS

• Gas Malaysia Bhd’s (GMB) 1QFY17 reported earnings rose by +8.5%yoy to RM34.1m

• Revenue staged increase of +23.5%yoy to RM1,187m, highest ever recorded

• Commendable earnings contributed by higher volume of gas sold

• Maintain BUY with a revised TP of RM3.50 per share premised on strong sales, good dividend yield and strong potential upside

Stronger quarters ahead. GMB’s 1QFY17 earnings rose by +8.5%yoy to RM34.1m. Although the company’s 1QFY17 earnings only made up 19% of our full year FY17 earnings estimates, GMB’s earnings results are typically the weakest in the first quarter. Therefore, we are expecting stronger quarters ahead.

Commendable rise in revenue. The company’s FY17 revenue rose by +23.5%yoy, topping RM1.187b, highest ever achieved largely due to higher volume of gas sold and the upward revision of natural gas tariff.

Incentive-based regulation (IBR) framework. The IBR framework is clearly having a positive impact on the group revenue and earnings as its regulated assets continue to increase. In addition, the IBR will provide financial neutrality to the company with respect with any gas costs fluctuations. Management guided that the increase in volume of gas sold and rise in new customers acquisition is likely to sustain in FY17.

Impact on earnings. No change to our earnings estimates at this juncture as we are expecting stronger quarters ahead. This is in-line with our house expectations of Malaysia’s GDP expanding by 4.9% in 2017.

Dividends. As expected, the company has declared 100% of its earnings in FY16 as dividends, totaling 12.86sen per share.

Maintain BUY. We are maintaining our BUY recommendation with a revised target price of RM3.50 per share. We roll forward our valuation base year to FY18. Our TP valuation is based on Gordon Growth Model with a risk-free rate (rfr) assumption of 3.9%, market-risk premium of 6.1%, beta of 0.6x and a terminal growth rate of 4%.

Source: MIDF Research - 11 May 2017