Gas Malaysia’s 1H17 results better
KUCHING: Gas Malaysia’s first half of 2017 (1H17) earnings were in line with expectations, on the back of unsurprising second quarter of 2017 (2Q17) results.
As per a filing on Bursa Malaysia, Gas Malaysia’s net profit for the cumulative six months ended June 30, 2017 amounted to RM72.9 million, up from RM70.2 million in the corresponding period last year.
According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), there was no surprise in 2Q17 results, which saw Gas Malaysia’s core earnings growing 29 per cent to RM42.1 million.
This totalled 1H17 core profit to RM74.7 million which accounted for 45 per cent of Kenanga Research’s financial year 2017 (FY17) forecast as well as market consensus.
The research arm expected earnings to pick up further in 2H17 after a slow start in 1Q17.
Gas Malaysia’s cumulative six months of FY17 ( 6MFY17) earnings of RM72.9 million also broadly kept pace with the research arm of MIDF Amanah Investment Bank Bhd’s ( MIDF Research) and consensus full year FY17 earnings estimates at 41 per cent and 44 per cent respectively.
On dividends, MIDF Research noted that the company has declared first interim dividend of four sen per share representing a dividend payout ratio of 70 per cent from current earnings per share ( EPS).
“Gas Malaysia typically declares three tranches of dividend payments,” it said. “This is within our expectations.”
MIDF Research was conservative in its dividend payout forecast (90 per cent) despite the company having paid out 100 per cent of earnings the past many years.
The research arm’s conservatism was largely premised on heavy capital expenditure (capex) requirements and over or underrecovery of gas cost arising from variance between actual market price and the forecast market price which was used for determining the current tariffs which will affect the company’s cash flow.
Moving forward, MIDF Research expected stronger quarters ahead as 2H has historically been a stronger period.
Given that the research arm expected stronger quarters ahead, no changes were made to its earnings estimates at this juncture.
“We are maintaining our earnings estimates for Gas Malaysia at this juncture, expecting stronger gas sales volume and earnings,” it said.
This was in-line with its house expectations of Malaysia’s gross domestic product (GDP) expanding by 5.1 per cent (revised from 4.9 per cent previously) in 2017.
As such, MIDF Research maintained its ‘buy’ recommendation with an unchanged target price of RM3.50 per share.
Following Gas Malaysia’s 1H17 briefing post-2Q17 results release last Friday, Kenanga Research highlighted that although management did not disclose margin spread for 2Q17, the research arm believed the margin could have come off from the RM1.80 per mmbtu that was achieved in the past three to four quarters.
“This was judged based on CapCon, tolling fees and gas volumes in 2Q17,” the research arm said.
“Nonetheless, we believe this is just timing differences as under the Gas Cost Pass-through (GCPT) gas price movement risk is transferred to end-users.”
Despite higher volume growth guidance, the research arm kept to its three per cent growth for FY17-18, thus keeping its estimates unchanged for now.
Although management expects higher volume growth in the next three years, Kenanga Research believed this has been mitigated by the slower-than- expected contributions from Gas Malaysia’s non-regulated business.