Analysts positive on Gas Malaysia’s prospects
KUALA LUMPUR: Gas Malaysia Bhd’s (Gas Malaysia) prospects have been viewed positively with analysts expecting the company’s earnings to be driven by volume growth.
“We remain positive on its earnings prospects given the RM1.80 to RM2 per mmbtu margin spread that will keep its earnings growing on the back of volume growth.
“In addition, there is uptick in earnings from additional shipper charges when third party shipper utilises its distribution network,” said the research team at Kenanga Investment Bank Bhd (Kenanga Research).
Aside from that, it noted that effectively from the newly announced RP1, Gas Malaysia will be an investment holding company with earnings derived from shipper and distribution systems with a combined margin spread maintained at RM1.80 to RM2 per mmbtu.
“As such, volume plays an important role to earnings growth while the shipper charges to third party shipper for using Gas Malaysia’s distribution systems should add extra income to the group.
“For now, we keep our financial year 2020 (FY20) estimates unchanged while introducing new FY21 forecast with volume growth and spread margin maintained at three per cent and RM2 per mmbtu, respectively,” it added.
In a separate note, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) said Gas Malaysia’s earnings would mainly be driven by expansion of existing customers’ volume and be er margins resulting from the recently implemented Third Party Access (TPA) regulation.
“Management also guided that FY20F will see growth coming in partially from the increase in volume of gas sold in-line with its recently acquired customers.
“We also note that, growth in the gas sales volume will continue to be steered primarily by rubber, oleochemical, consumer products and glass manufacturing industries.
“Notably, Gas Malaysia is also in progress to build more facilities up in the north between Kedah and Perlis which would further increase the gas off take from Gas Malaysia,” it added.
On Gas Malaysia’s fourth quarter of 2019 (4Q19) results, MIDF Research said its earnings came within expectations at RM57.2 million.
During the quarter, it noted that Gas Malaysia’s revenue contracted by 3.5 per cent y-o-y due to an adjustment made based on Gas Cost pass Through (GCPT) mechanism during the current quarter to correct the accruals for under recovery of gas cost.
Meanwhile, it said, earnings after excluding the one-offs dipped by 31.3 per cent y-oy. On a quarterly sequential basis, revenue declined marginally by 4.4 per cent whilst earnings contracted by 29.2 per cent q-o-q. This was mainly attributable to higher operating expenses and higher finance costs booked during the quarter.
All in, MIDF Research retained its ‘buy’ recommendation on Gas Malaysia.
“We remain positive on Gas Malaysia given that we expect that Malaysia’s GDP will continue to expand, at 4.5 per cent in 2020, Gas Malaysia’s effort in acquiring new customers, and growing pressure on manufacturers nationwide on the usage of clean energy such as natural gas in their operations which we opine will assist in pushing up the volume for Gas Malaysia.”