Gas Malaysia - Earnings Normalising

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GASMSIA’s 9MFY23 results beat our forecast but only met market expectation. Its earnings are normalising (from bumper pandemic years due to the spike in gas prices). We raise our FY23-24F net profit forecasts by 6% and 2%, respectively, lift our TP by 1% to RM3.33 (from RM3.30) but maintain our MARKET PERFORM call. The stock offers a dividend yield of >6%.

GAMSIA’s 9MFY23 core profit of RM278.6m beat our forecast at 80% of our full-year forecast but only met market expectations at 76% of full-year consensus estimate. The variance against our forecast came largely from a higher-than-expected sales volume and better retail margins as its gas selling prices fell less than expected. No dividend was declared as expected as it usually pays half-yearly dividend.

YoY, although its sales volume contracted 13% to 109.9m GJ, its 9MFY23 turnover jumped 16% to RM6.28b on the back of higher gas selling prices. The Malaysia Reference Price (MRP) soared 35% to RM49.31/mmbtu in 9MFY23. However, its 9MFY23 core profit fell 5% to RM278.6m largely due to a lower gas volume as mentioned above.

QoQ, its 3QFY23 revenue fell 10% mainly due to lower gas selling prices (MRP -13% to RM37.20/mmbtu), partially mitigated by a 4% increase in its sales volume to 37.2m GJ. Meanwhile, its core profit declined 12% to RM86.0m largely due to lower gas selling prices as mentioned above.

The key takeaways from the results briefing are as follows:

1. During 9MFY23, GASMSIA had a net addition of 14 industrial accounts (26 new accounts, partially offset by the non-renewal of 12 existing accounts). Four customers requested for increased supply. Nonetheless, 9MFY23 sales volume fell 13% to 109.9m GJ from 126.7m GJ previously as mentioned.

2. The 4% increase in 3QFY23 sales volume was mainly driven by glove manufacturers. GASMSIA believe that the earlier demand downtrend from glove manufacturers has bottomed.

3. It expects a sequential increase in sales volume in 4QFY23 due to seasonality. On expectation of flattish gas selling prices, its 4QFY23 performance is likely to improve QoQ.

Forecasts. We raise our FY23-24F earnings forecasts by 6% and 2%, respectively, as we raise our sales volume assumption by 1% and lift our margin assumption to RM2.80/mmbtu (from RM2.70/mmbtu previously) for FY23. We keep our margin assumption of RM2.50/mmbtu in FY24.

Consequently, we upgrade our DCF-derived TP by 1% to RM3.33 (from RM3.30) based on an 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 4).

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 flows generation anchoring a dividend yield of >6%. However, there is a lack of catalyst given that its earnings have already peaked in FY22 with gas prices easing.

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 - 29 Nov 2023

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