PETALING JAYA: Gas Malaysia Bhd had a good start for its first quarter ended March 31 (Q1FY21) with core profit rising 16% year-on-year (y-o-y) to RM55.6mil.
The results came in within analysts’ expectations, of which the group’s sales volume has normalised to pre-Covid-19 level since Q4FY20.
Despite revenue falling 28% to RM1.15bil, the jump in earnings was largely due to a hike in total gas sales volume.
Coupled with margin spread seemingly trending within expectations too, this is expected to lead earnings growth, said Kenanga Research.
The research house noted that earnings of Gas Malaysia, which supplies and sells reticulated natural gas and LPG in Peninsular Malaysia, are fairly resilient.
“As such, it will be a volume play with management guiding GDP-like demand growth for the future.
“We have forecast a 3.8% demand growth in FY21 and for beyond, a flat 3% growth, ” it said in its report yesterday.
According to Kenanga, the group’s management is exploring new opportunities under the Third Party Access (TPA) system to expand its non-regulated earnings base. But this is still at a preliminary stage with no timeline set. Post Q1FY21 results, the research house is keeping its estimates unchanged.
It remains positive on long-term earnings prospects given the margin spread of above RM2.00 per mmbtu (million British thermal units) will keep its earnings growing on the back of volume growth.
“The stock remains an outperformer with unchanged discounted cash flow (DCF)-derived target price of RM2.91, which is also supported by an attractive dividend yield of above 5%.
Meanwhile, Maybank Investment Bank Research, reiterates its “buy” on the stock with an unchanged DCF-based RM3 target price.
It expects Gas Malaysia’s spreads and earnings to remain elevated in the coming quarters with economic activities still being allowed in the latest round of MCO.
“We do not expect any material downside to Gas Malaysia’s FY21 gas volumes. Every 5 sen/mmbtu change to our spread assumption (RM2.25/mmbtu) would move our FY21 net profit forecast by 3.8%, ” it added.