Gas Malaysia sells greater volume

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Gas Malaysia Bhd
(Nov 13, RM3.49)
Maintain “add” with a target price (TP) of RM3.95:
Gas Malaysia’s third quarter of financial year 2014 (3QFY14) core net profit of RM69.4 million brought its ninth month of FY14 (9MFY14) core net profit to RM144.3 million, accounting for 74% of our and consensus full-year forecasts, which is in line with expectations.

Core net profit for the quarter grew 16.5% year-on-year (y-o-y) on the back of 25.8% revenue growth, which was driven by greater volumes sold and higher selling prices.

No dividends were declared in the quarter, which is the norm as Gas Malaysia usually declares dividends in 2Q and 4Q.

We make no changes to our earnings forecasts and our TP of RM3.95, based on 24 times FY15 earnings per share. We maintain our “add” call on the stock.

Gas Malaysia’s 3QFY14 revenue of RM734.4 million implied y-o-y growth of 25.8% over 3QFY13 revenue of RM583.7 million.

The growth was underpinned by greater sales volumes of gas, coupled with higher selling prices resulting from the gas price revision in 2Q14.

Gas Malaysia’s earnings before interest, taxes, depreciation and amortisation (ebitda) expanded 16.3% as operating costs were higher y-o-y.

This flowed down to a pre-tax profit of RM69.4 million, which grew 17.3% y-o-y.

Core net profit climbed 16.5% y-o-y as the tax rate in the quarter was higher by 0.6 percentage points y-o-y.

For 9MFY14, core net profit rose 9.9% y-o-y to RM144.3 million on the back of 16.3% y-o-y revenue growth.

Gas Malaysia recently announced a hike in its selling price of 45 sen per mmbtu  to RM19.77 per mmbtu from RM19.32 per mmbtu previously.

The new gas price took effect at the beginning of November.

Gas Malaysia’s buying price will also be revised accordingly, which we think will likely maintain its RM2 per mmbtu margin.

We note that the hike in selling price itself was actually minimal as the price was only raised by 2.3%, which was low compared with 20.4% in April.

Despite the minimal hike, we are positive that the gas pricing has been revised as it implies that the government is keeping to its six-month review programme.

We believe that the six-month gas price review will continue, which will allow Gas Malaysia to pass on the costs to its customers. We expect the next revision to come in April. — CIMB Research, Nov 13

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This article first appeared in The Edge Financial Daily, on November 14, 2014.