GAS MALAYSIA BHD

By UOB Kay Hian Malaysia Research Hold (maintained) Target price: RM2.90

GAS Malaysia is anticipated to achieve a 5% to 6% volume growth over the next two years against a backdrop of healthy natural gas demand, said UOB Kay Hian Malaysia Research.

The research firm also pointed out that Gas Malaysia’s volume growth would be supported by additional 150 new industrial customers within the glove, food and beverages (F&B) as well as glass sectors in the near term.

To recap, Gas Malaysia experienced strong gas volume surge of 12% year-on-year in 2017. This reflects 49 new industrial customers, and the main reason for the uptick was a 200% demand surge from the glass sector, given its low base.

According to UOB Kay Hian Malaysia Research, the glass sector represents manufacturers who produce floating glasses for building and export mainly to India and China. Additionally, the company also benefited from robust activities within the glove, F&B and chemical sector in 2017.

The research house viewed Gas Malaysia’s venture into the unregulated combined heat and power and virtual pipeline operations business as a longer-term growth story.

“At this juncture, customer take-up is low due to persistently low oil prices. This hampers the scalability of Gas Malaysia’s venture into the unregulated business.

“Positively, we note that the company has started reaping the benefits of its venture into the unregulated business. In 2017, associate net profit stood at RM3.3mil compared with start-up losses of RM1.5mil in 2016.

“We expect a more meaningful turnaround by 2020, when the group’s unregulated business is expected to account for 5% of group revenue, or about RM300mil,” it said in a note. UOB Kay Hian Malaysia Research has maintained its 2018-19 net profit estimates for Gas Malaysia, due to a stable margin outlook under the incentive-based regulation (IBR) framework and about 4%-6% gas volume growth for 2018 against a high base of 12% in 2017.

It also said that Gas Malaysia’s high earnings visibility paves the way for a payout of 100% of its earnings to shareholders.

The stock offers 4.8% and 4.9% net dividend yield for 2018 and 2019 respectively.