Higher tariff bodes well for Gas Malaysia


Last week, Gas Malaysia Bhd had set the average natural gas selling price for the distribution segment of its unit Gas Malaysia Energy and Services Sdn Bhd at RM26.85 per million British thermal unit (MMBtu) for Q2’21 – representing a 21.3% or RM4.71/MMBtu quarter-on-quarter (q-o-q) increase.

PETALING JAYA: The higher gas tariff for the second quarter of 2021 (Q2’21) is positive for gas retailer Gas Malaysia Bhd, but may have some impact on industries.

Last week, Gas Malaysia Bhd had set the average natural gas selling price for the distribution segment of its unit Gas Malaysia Energy and Services Sdn Bhd at RM26.85 per million British thermal unit (MMBtu) for Q2’21 – representing a 21.3% or RM4.71/MMBtu quarter-on-quarter (q-o-q) increase.

But compared to 2020, the average selling price (ASP) has dropped from RM33.65/MMBtu.

Maybank IB Research said higher gas cost raises the retail margin and is thus positive for Gas Malaysia, all other factors being equal.

“We reiterate buy with an unchanged discounted cash flow-based RM3 target price as we expect Gas Malaysia’s spreads and earnings to remain elevated going forward, ” it said in a note to clients yesterday.

It added that for every five sen/MMBtu change to its spread assumption, it would move the research firm’s financial year 2021 (FY21) net profit forecast by 3.8%.

For glove makers, natural gas accounts for about 10%-15% of glove manufacturing cost.

That said, TA Securities Research said the changes in natural gas selling price would have a minimal impact of less than 1.5% on glove manufacturer’s earnings.

This is because the ASP of gloves is currently driven mainly by supply-demand and sentiment.

“Based on channel checks, the ASP trend for glove manufacturers varies. For instance, the ASP of gloves from the market leader is expected to drop by about 5% month-on-month (m-o-m) in April and a further 5%-10% m-o-m decline in May 2021,

“However, we expect the ASP of Hartalega Holdings Bhd and Kossan Rubber Industries Bhd gloves to remain on an uptrend (circa 15% q-o-q) in Q2’21, due to the time lag effect in adjusting the ASPs for their prior sales, ” it said.

For now, TA is making no changes to the earnings estimates for glove companies under its coverage and has assumed the price of natural gas to decrease by 11% in FY21.

“All in all, we maintain our overweight stance on the sector.

“Currently, the gloves sector is trading at 5 times 2021 earnings per share (EPS) or 9 times 2022 EPS, which is undemanding considering that the worldwide Covid-19 pandemic is not under control yet, ” it said.

Analysts expect that post Covid-19, inventory restocking cycle will continue to spur glove demand, coupled with increased usage arising from new users and higher hygiene awareness.

According to a recent report, the rubber glove sector remained the biggest contributor to Gas Malaysia’s revenue at 36%, followed by consumer products at 17%, oleo-chemical at 13% and glass at 9%.

The hike will not be applicable to the sales of gas for natural gas vehicles and liquefied petroleum gas supplied in gas cylinders or in bulk.

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