PETALING JAYA: Analysts view Gas Malaysia Bhd
’s newest project to build a liquefied natural gas (LNG) regasification terminal as a significant positive, as it secures for the company a new long-term recurring income stream alongside the group’s existing resilient gas business.
Kenanga Research said in a report to clients based on a 20-year concession, RM3bil investment, and a 10% projected internal rate of return (IRR), it estimated this project will add 73 sen per share to the company’s valuation.
Gas Malaysia recently secured approval from the Energy Commission to build a LNG regasification terminal in Yan, Kedah, with an estimated cost of up to RM3bil.
Located to the west of Pulau Bunting, the terminal is envisaged as an offshore floating storage and regasification unit with a planned regasification capacity of up to six million tonnes per annum.
The company said the project is currently estimated to involve a development cost of approximately RM2bil to RM3bil and the manner of funding for the project will be determined at a later stage.
It said the letter to proceed on this job represents a significant development which enables the project to progress into the next phase of implementation, including detailed engineering, financing progression, site preparation and other related preparatory works.
Kenanga Research said assuming an investment cost of RM3bil for six million tonnes per annum capacity, a debt-to-equity ratio of 80:20, a weighted average cost of capital of 6.3%, a project IRR of 10%, and a 70% capacity utilisation over a 20-year concession, this terminal would generate a net present value of RM1.71bil.
“We believe Gas Malaysia has the financial strength to fund this project, given its current low net gearing of 0.09 times.
“While a specific completion timeline was not disclosed, we expect the terminal to be ready by 2030 to meet rising gas demand from the recent influx of data centres,” it said.
The research house said the steady recovery of gas volume following the Putra Heights fire should sustain earnings growth and support attractive dividend yields.
We expect the recovery to be sufficient to mitigate the narrower margin spreads resulting from the January 2025 contract renewals, it added.
Maintaining a “market perform” call on the company, Kenanga Research said it liked Gas Malaysia for its strong market position, as a key natural gas retailer in Malaysia, strong earnings visibility underpinned by its ability to retain customers, typically via a three-year contract, and strong free cash generation, anchoring a dividend yield of more than 4%.
Risks to its recommendation include regulatory risk, volatility in margin spread of non-regulated business, and an economic slowdown hurting demand for gas.
At last look, the stock was at RM5.41 apiece.
Kenanga Research has a target price of RM5.23 on it.
