Gas Malaysia Bhd
(Feb 15, RM2.80)
Maintain buy with a target price (TP) of RM 3.50: Gas Malaysia Bhd (GMB)’s 4QFY18 reported earnings declined by -16.7% year-on-year (y-o-y) to RM51.1 million versus RM61.3 million in 4QFY17. This brings the company’s cumulative FY18 earnings to come in broadly within ours and consensus expectations at RM180.4 million, making up 93% and 96% of our and consensus FY18 earnings estimates respectively.

 
The decline is mainly due to lower gas contribution margin recognised during the quarter as a result of a one-off catch up gas cost pass-through (GCPT) adjustment made in the preceding quarter. That said, earnings during the quarter were supported by revenue which expanded by +19.4% y-o-y largely due to the higher volume of natural gas sold and higher natural gas tariff.

We reiterate our view that we opine gas sales volume for FY19 will continue to sustain and register year-over-year growth. Our current gas volume growth projection is between 6-6.5%. Our assumption is premised on resilient national gross domestic product (GDP) growth of 4.9% for 2019. Moving forward, we believe that the growth in the gas sales volume will be primarily driven by rubber, oleochemical, consumer products and glass manufacturing industry supported by 2019 GDP growth of approximately 4.9%.

The incentive-based regulation (IBR) framework is clearly having a positive impact on the group revenue and earnings as its regulated assets continue to increase. In addition, the IBR will provide financial neutrality to the company with respect to any gas cost fluctuations.

Management guided that the increase in volume of gas sold and rise in new customers acquisition are likely to sustain throughout 2018. — MIDF Research, Feb 15