Gas Malaysia 4Q23 net profit forecast to rise 3%

Kenanga Research expects Gas Malaysia’s 4Q23 net profit to come in at about RM88mil.

KUALA LUMPUR: Gas Malaysia Bhd’s net profit for the fourth quarter ended Dec 31, 2023 (4Q23) is expected to inch up 3% sequentially, backed by a higher sales volume coupled with better gas selling prices.

“We expect Gas Malaysia’s 4Q23 net profit to come in at about RM88mil (3% rise quarter-on-quarter), bringing cumulative financial year 2023 (FY23) net profit to about RM367mil, which will be in line with our forecast,” Kenanga Research said in a report.

The research house said it expects better sales volume sequentially by about 4% in 4Q23, given the improved business conditions especially in the local glove-manufacturing sector whose declining sales trend had already bottomed in 2Q23.

To recap, sales volume in the glove sector always made up over 30% of Gas Malaysia’s total sales volume (33% in FY19) in the pre-Covid period and it hit a record high of 38% in FY20.

However, due to oversupply coupled with a sharp decline in demand post-pandemic, the glove sector only made up to 20% of the group’s sales volume in 3Q23.

Kenanga Research said gas pricing for 4Q23 is also likely to improve further, given that the price of liquified natural gas (LNG) rose 5% quarter-on-quarter to RM43.96 per metric million British thermal unit (mmbtu) in 4Q23 from RM41.87 per mmbtu in the preceding quarter.

The gas selling price is based on the Malaysia Reference Price (MRP) plus beta while MRP is the weighted average price of LNG free-on-board exported from Malaysia, as declared by the Statistics Department.

As such, the higher LNG price should help to increase the company’s retail margin which is pegged to a percentage of the gas selling price.

“We keep our forecasts, target price of RM3.33 and ‘market perform’ call. The stock is supported by an above-average dividend yield of over 6%,” Kenanga Research said.

“We like Gas Malaysia for its strong market position, being a key natural-gas retailer in Malaysia, strong earnings visibility underpinned by its ability to retain customers, typically, via three-year contracts, and strong free cash flow generation anchoring a dividend yield of over 6%.

“However, there is a lack of catalysts given that its earnings peaked in FY22 with gas prices easing,” the research house added.