KUALA LUMPUR (June 18): CIMB Research has downgraded Gas Malaysia Bhd to “Reduce”(from Hold) at RM2.57 with a lower target price of RM2.25 (from RM2.89) and said its recent meeting with Gas Malaysia revealed that the introduction of incentive-based regulation (IBR) for the gas sector was well under way.
In a note today, the research house said it was negatively surprised that IBR could be implemented by as soon as Jan 2016.
It said this was negative for Gas Malaysia as its earnings could drop under the IBR’s pricing framework.
“We cut our FY15-17 EPS by 2-19% as we factor in the potential impact of IBR.
“We lower our target price to RM2.25 as we change our valuation method to SOP from 22x CY16 P/E to better reflect its earnings composition.
“We also downgrade to Reduce from Hold as IBR could lead to a sharp earnings erosion.
“The key de-rating catalysts are the introduction of IBR by the end of the year and weaker earnings in 2016. We prefer Petronas Gas Bhd for more stable earnings,” it said.