GASMSIA posted yet another record earnings of RM116.0m in 3QFY24, bringing YTD core profit to RM328.7m which beat forecasts. This strong performance was driven by higher-than- expected gas sales volume. We expect sales volume will continue to drive earnings growth. As such, we upgraded FY24-25F earnings by 9-15%, and TP by 7% to RM3.85. It remains a MARKET PERFORM for its attractive dividend yield of 7%.

9MFY24 results beat expectations. GASMSIA's 9MFY24 results topped expectations with core profit of RM328.7m making up 83% of both house/street's full-year forecasts. The key variance against our forecasts came from higher-than-expected gas sales volume - 9MFY24 of 119.9m GJ accounted for 78% of our FY24's 154.6m GJ.

No dividend was declared in 3QFY24 as expected as it usually pays half-yearly dividend.

Sales volume led earnings growth. 3QFY24 core profit hit a new high of RM116.0m, up 5% QoQ from RM110.1m in the preceding, on the back of 7% hike in revenue to RM2.13b. This was largely due to a 12% jump in gas sales volume QoQ to 43.1m GJ from 38.5m GJ, making the highest level since 3QFY22.

YoY, despite a 5% decline in revenue to RM5.99b, 9MFY24 core profit rose 18% to RM328.3m from RM278.7m in 9MFY23. This was driven by gain in operating scale on a higher sales volume by 9% while the contraction in topline was mainly due to the decline in gas selling price as Malaysia Reference Price (MRP) fell.

Forecasts. We raise our FY24F-25F net profit by 9-15% as we adjust our gas sales volume growth to +9.0% and +3.0% from +4.0% and +3.0% while EBITDA margin is fine-tuned to 8.2% and 8.0% from 8.0% and 7.5% previously. However, our long-term sales volume growth rate is maintained at 2.0% with a lower EBITDA margin of 7.5% to keep its customers as most of the 3-year contracts end by this year.

Valuations. Post earnings revision, we upgraded our DCF-derived TP by 7% to RM3.85, from RM3.61 previously, which is based on unchanged WACC of 6.5% and a TG of 2%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by use (see Page 5).

Investment case. 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 flow generation, anchoring a dividend yield of 7%. However, its valuations are fair at the current level. Maintain MARKET PERFORM.

Risks to our recommendation include: (i) regulatory risk, (ii) volatility in margin spread of non-regulated business, and (iii) economic slowdown hurting demand for gas.

Source: Kenanga Research - 26 Nov 2024