Gas Malaysia results within expectations

PETALING JAYA: Gas Malaysia Bhd’s results for the second quarter ended June 30 came largely within analysts’ expectations but the Covid-19 pandemic continues to be a setback to its growth momentum.

CGS-CIMB Research said the company, which supplies and sells reticulated natural gas and liquefied petroleum gas in Peninsular Malaysia, is targeting fewer new customers in financial year 2021 (FY21).

“We gather that gas in the second quarter of 2021 was mainly sold to rubber product manufacturers, which made up 37% of total sales volume and consumer products (at 19%).

“Gas Malaysia now aims to secure 50 new industrial customers in FY21, compared with its previous target of 60 to 70, and has signed up 25 new customers as of the first half of 2021,” it said in a report yesterday.

According to the research firm, the group expects FY21 gas volume to grow in tandem with Malaysia’s gross domestic product growth of 3%-4%, as projected by Bank Negara.

Management said it is too early to gauge the gas volume trend for the third quarter of 2021, as it would depend on the potential easing of restrictions on economic activities, it added.

CGS-CIMB expects weaker third-quarter earnings due to the ongoing full Covid-19-related lockdown that started in June and enhanced lockdowns in certain areas.

In the second quarter, Gas Malaysia’s net profit surged 40% to RM62.3mil from RM44.6mil a year ago. Quarter-on-quarter (q-o-q), profitability was up 12%, bringing first-half 2021 net profit to RM118mil. It declared a first interim dividend of 4.8 sen for the second quarter.

Analysts noted that despite a q-o-q volume decline, the “accrual of the revenue-cap adjustment (clawback for revenue shortfall) resulted in a higher-than-expected spread, hence the earnings growth both q-o-q and year-on-year”.

Maybank Investment Bank (IB) Research opined that while financial performance is relatively resilient, gas volume would likely continue to be pressured as the movement restrictions drag on. It sees little scope for positive earnings surprises.

The research firm maintains a “hold” with earnings forecasts and the RM2.80 target price unchanged.

It said that every 5 sen per metric million British thermal units (mmBtu) change to its spread assumption (RM2.25 per mmBtu) would move FY21 net profit forecast by 3.8%.

On the other hand, CGS-CIMB reiterates its “add” call, given the stock’s relatively stable earnings and decent dividends as potential re-rating catalysts.

Going forward, MIDF Research noted that the local gas market is expected to be fully liberalised in FY22, as a next step forward in attracting third-party shippers into the market by importing liquefied natural gas (LNG) that will be supplied to local industries.

This is due to the cheaper locally-regulated gas prices adjusted upwards over the years and is nearly on par with international prices.

According to MIDF, future LNG demand will depend a lot on the progress of the market liberalisation, and LNG can easily be absorbed into Malaysia if the power sector gas price is based on market price.

“This could encourage LNG imports and ensure the reliability of supply in the long term. As of now, Gas Malaysia has allowed third parties to use its gas distribution pipeline at regulated rates.

“Many industry clients are still on long-term contracts with Gas Malaysia for supply security. Thus, third-party shippers should be able to enter the market when the contracts expire at the end of FY21,” it said in a report.

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