INVESTMENT HIGHLIGHTS

• Gas Malaysia’s (GMB) 4QFY17 reported earnings skyrocketed to RM77m (+49.2%yoy)

• Earnings growth premised on strong sales growth of +40.1%yoy to RM1,471.1m

• 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

Strong sales volume. GMB’s 4QFY17 reported earnings surged by +49.2%yoy to RM77m. The company’s cumulative FY17 earnings of RM194.6m exceeded ours and consensus expectations by a variance of more than >10%. Although we were expecting stronger earnings in 2H, the surge in earnings recorded were largely due to higher-thanexpected higher volume of gas sold and higher natural gas tariff.

Gas sales volume to expand aggresively in FY18. We believe that gas sales volume for FY17 registered strong year-over-year growth of more than +8%yoy – We were conservatively projecting growth of between 6-6.5%. This is a direct result of strong GDP growth of 5.9% recorded in 2017 compared with 4.2% recorded a year earlier. Moving forward, we believe that the growth in the gas sales volume will be primarily driven by the rubber, oleo-chemical, consumer products and glass manufacturing industry supported by robust 2018 GDP growth of approximately +5.5%.

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 throughout 2018.

Impact on earnings. Given the anticipated strong gas sales volume in FY18 supported by robust GDP growth, we are revising our FY18 earnings forecast upward by +7.4%. We are however maintaining our conservative dividend payout forecasts.

Source: MIDF Research - 19 Feb 2018