• Gas Malaysia Berhad’s (GMB) 2QFY17 reported earnings rose by +0.8%yoy to RM39.3m

• Gas sales volume expected to grow further in 2HFY17

• Commendable earnings contributed by higher volume of gas sold

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

Earnings recap. To recap, GMB’s 2QFY17 earnings rose by +0.8%yoy and +15.4%qoq to RM39.3m. The commendable earnings growth is premised on strong growth in revenue of +32.2%yoy to RM1.3b. The strong sales are a result of higher volume of gas sold, upward revision of natural gas tariff and higher tolling fees.

Gas sales volume to expand in FY17. Gas sales volume for FY17 is expected to register strong year-over-year growth of approximately +8.6%yoy (conservative projection is between 6-6.5% growth). This is premised on our house expectations that Malaysia could record a GDP of 5.1% for full year 2017. The growth in the gas sales volume will be primarily driven by the rubber, oleo-chemical, consumer products and glass manufacturing industries.

Growing customer base. In 1HFY17, GMB managed to secure 21 new industrial customers, growing its industrial customer base to 837 currently. The industrial customers segment alone contributes 99.1% of the total volume demand from GMB. The large proportion of industrial customers is from the rubber products segment (32%) and F&B and tobacco (25%). For the next three years, GMB targets to acquire an additional 200 new industrial customers.

Capex plan for next three years. GMB has planned an additional 500km of pipeline requiring total capex of RM525m and between RM150-200m is planned for its non-regulated business expansions.

Impact on earnings. We are maintaining our earnings estimates for GMB at this juncture, expecting stronger gas sales volume and earnings.

Source: MIDF Research - 14 Aug 2017