Kenanga IB lowers rating on Gas Malaysia

KUALA LUMPUR: Kenanga Investment Bank (Kenanga IB) has downgraded Gas Malaysia Bhd to “market perform” from “outperform” as it believes all positives have already been priced-in following a seven per cent run in its share price in the past two weeks.

It remains positive on Gas Malaysia’s outlook for its steady volume growth coupled with margin spread certainty.

“The higher effective tariff rate of RM32.69/mmbtu in the second half of this year will have a neutral impact on Gas Malaysia’s bottom line as it is a cost pass-through from higher gas costs. Nonetheless, we still continue to like the incentive-based regulation (IBR) framework as it offers better earnings visibility,” it said in a note yesterday.

Kenanga IB believes the IBR framework would stay beyond next year as it is a fair and transparent mechanism.

Gas Malaysia announced that the government had approved the half-yearly natural gas base-tariff rate revision for non-power sectors in Peninsular Malaysia to RM31.92/mmbtu on average for July-December this year, from RM30.90/mmbtu in January to this month.

The revision is in line with the national rationalisation plan and Gas Cost Pass-through (GCPT) announced in December 2016.

In addition, under the GCPT framework, a surcharge of RM0.77/mmbtu will apply to all tariff categories due to higher actual gas costs against the reference gas costs, translating to an average effective tariff of RM32.69/mmbtu which is slightly higher than RM32.52/mmbtu for the first half this year.