Thursday 28 Mar 2024
By
main news image

KUALA LUMPUR (May 6): Gas Malaysia Bhd’s earnings for the financial year ending Dec 31, 2021 (FY21) may decline from FY20 amid a predicted drop in average gas selling price, said CGS-CIMB.

In a note today, its analyst Ngo Siew Teng said the lower selling price could in turn affect its shipper unit profits.

However, she pointed out that “there could be potential earnings upside if the average gas selling price is revised up in future according to market prices (2020: RM33.65/MMBtu vs. Jan-Jun 2021: RM24.50/MMBtu)”.

Gas Malaysia expected its gas volume for FY21 to grow in line with Malaysia’s gross domestic product (GDP) growth, which Bank Negara Malaysia has forecast to range from 6% to 7.5%.

“We cut our FY21-23F revenue forecasts by 4-7% to factor in the lower average gas selling price and higher gas volume, but raise our FY21-23 EPS [earnings per share] estimates by 1-4% due to lower costs,” she said.

According to her, Gas Malaysia’s results for the first quarter ended March 31, 2021 (1QFY21) were within expectations, at 28% of her full-year estimates and 29% of Bloomberg’s consensus forecast.

“We gather that the 1Q21’s gas was mainly sold to the manufacturers of rubber products (37%) and consumer products (20%),” she said

Ngo reiterated her “add” rating on the stock, with its stable earnings and decent dividends as potential re-rating catalysts.

However, she raised its target price to RM2.97 from RM2.85 prior, based on its forecasted FY22 one-year historical mean price-to-earnings (P/E) ratio of 18.2 times.

“We are using the one-year historical mean as it reflects Gas Malaysia’s trading range during the implementation of the IBR period in 2020,” she said.

Meanwhile, Kenanga Investment Bank Bhd analyst Teh Kian Yeong was confident of Gas Malaysia’s long-term earnings prospects.

“Sales volume, which has already normalised to pre-Covid-19 level since 4QFY20, is expected to lead earnings growth. Coupled with expected margin spread, this ensures earnings certainty,” he wrote in a note today.

“With sales volume back to pre-Covid-19 level since 4QFY20 and any short-fall of demand adjusted under revenue cap which is the same for FY20, Gas Malaysia’s earnings are fairly resilient.

“As such, it will be a volume play with management guiding GDP-like demand growth for the future. We have forecasted 3.8% demand growth in FY21 and for beyond, a flat 3% growth. Our margin spread is maintained at RM2.10/MMBtu while dividend pay-out ratio is 90%,” he added.

He kept his "outperform" call on the stock and maintained its target price of RM2.91.

To recap, Gas Malaysia’s net profit rose 16.2% to RM55.63 million in 1QFY21, from RM47.86 million a year ago, on higher volume of natural gas sold and higher contribution from joint ventures.

Earnings per share increased to 4.33 sen from 3.73 sen in 1QFY20, according to the group's bourse filing.

Quarterly revenue, however, was down 28.2% to RM1.15 billion from RM1.61 billion in 1QFY20 due to lower average tariff.

On a quarter-on-quarter basis, net profit fell 19.6% from RM69.23 million, while revenue dropped 36.6% from RM1.82 billion.

At the time of writing, Gas Malaysia shares were unchanged at RM2.71, with a market capitalisation of RM3.49 billion.

      Print
      Text Size
      Share