INVESTMENT HIGHLIGHTS

• Gas Malaysia’s (GMB) 1QFY19 reported earnings grew marginally by +2.4%yoy to RM41.2m

• Earnings growth supported by strong sales growth of +19.5% to RM1.7b

• Earnings cushioned by higher volume of gas sold and higher natural gas tariff

• Maintain BUY (revised TP of RM3.11 per share) premised on strong sales, good dividend yield and potential upside

Reported earnings grew marginally +2.4%yoy despite revenue expansion. GMB’s 1QFY19 reported earnings grew marginally by +2.4%yoy to RM41.2m vs RM40.2m in 1QFY18. It made up 19% and 21.5% of our and consensus’ FY19 earnings estimates respectively. The marginal increase is mainly due to higher other operating income, share of profit of joint-ventures and lower operating expenses. However, this was offset by slightly lower gross profit which was a result of higher other cost of sales recognised during the quarter. That said, earnings during the quarter was supported by revenue which expanded by +19.5%yoy largely due to the higher volume of natural gas sold and higher natural gas tariff.

Gas sales volume expected to continue to expand in FY19. We reiterate our view that we opine gas sales volume for FY19 will continue to sustain and register year-over-year growth. Our current gas volume growth projection remains between 6-6.5% similar to that of FY18. Our assumption is premised on resilient national GDP growth of 4.5-4.7% for 2019. Moving forward, we believe that the growth in the gas sales volume will be primarily driven by rubber, oleo-chemical, consumer products and glass manufacturing industry supported by 2019 GDP growth of about 4.5-4.7%.

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 to 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 2019.

Source: MIDF Research - 16 May 2019