Gas Malaysia IPO note
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Gas Malaysia IPO note
Key highlights from IPO briefing
Gas Malaysia’s IPO entails a public offer of 333.84m shares or 26% of enlarged paid up capital. Issued at a retail price of RM2.20, the IPO is mainly an offer for sale by its major shareholders. Proceeds from IPO do not go to the company.
Major shareholders are MMC Shapadu (55%), Tokyo Gas Mitsui (25%), Petronas Gas Bhd (20%) but their stakes will be reduced to 40.7%, 18.5% and 14.8% respectively after the IPO.
Operations
Gas Malaysia has a complete pipeline coverage throughout Peninsular Malaysia with 1,800km of underground pipelines throughout Peninsular Malaysia in order to deliver gas to its industrial, commercial and residential customers. Customer breakdown: 99.2% industrial, 0.8% commercial.
It has a market share of 12.6%, with the lion share of 87.4% held by Petronas Gas, its major shareholder. Gas Malaysia has an understanding with Petronas Gas on competition whereby there shall be no poaching of each other’s customers.
In February 2012, Gas Malaysia signed new Gas Supply Agreement with Petronas to increase gas supply from 382 to 492 MMScfd by 2015. With increased capacity, the company is able to serve new customers.
Financials
FY2011 net profit declined 23% YoY to RM229.2m following the revision of gas prices by the government. Earnings for the year dropped despite revenue rising 10.7% YoY. As a result FY2011 EBITDA margin fell to 16.5% from 23.3% in FY2010. Similarly, net profit margin dropped to 11.5% in FY2011 from 16.5% in FY2010.
Risk of government regulation
Buying and selling price of natural gas is regulated by the Energy Commission, thus margins are fixed. In May 2011, the government announced a new tariff which narrowed the buying and selling margin to RM2.02 from around RM4 previously.
As a result, 2011 earnings dropped due to the new tariff. Natural gas price is subject to revision every 6 months but the Energy Comission has yet to issue an instruction for second revision since June 2011.
Attractive dividend
The management has committed a dividend policy of a minimum payout ratio of 75%. From 2009 to 2011, it had previously paid out 95%, 100% and 90% of net profit respectively.
Assuming a payout ratio of between 75% and 100%, Gas Malaysia’s dividend yield could range between 6.1% and 8.1% based on 2011 net profit and retail price of RM2.20.
Management has earmarked capex of RM130-140 million this year followed by RM40m per year for 2013 and 2014 respectively. We expect the capex will not affect its dividend payout as the company has no borrowings with cash reserves of rm327m as of 31 Dec 2011.
Valuation and recommendation
Based on preliminary study, we value Gas Malaysia at an indicative target price of RM2.61 based on DCF valuation (discount rate of 9.7%, terminal growth rate of 2%).
We recommend investors to Subscribe as Gas Malaysia is a quality stock that provides stable dividend and resilient earnings under current market uncertainty. We will be issuing a full IPO report soon.
Gas Malaysia’s IPO entails a public offer of 333.84m shares or 26% of enlarged paid up capital. Issued at a retail price of RM2.20, the IPO is mainly an offer for sale by its major shareholders. Proceeds from IPO do not go to the company.
Major shareholders are MMC Shapadu (55%), Tokyo Gas Mitsui (25%), Petronas Gas Bhd (20%) but their stakes will be reduced to 40.7%, 18.5% and 14.8% respectively after the IPO.
Operations
Gas Malaysia has a complete pipeline coverage throughout Peninsular Malaysia with 1,800km of underground pipelines throughout Peninsular Malaysia in order to deliver gas to its industrial, commercial and residential customers. Customer breakdown: 99.2% industrial, 0.8% commercial.
It has a market share of 12.6%, with the lion share of 87.4% held by Petronas Gas, its major shareholder. Gas Malaysia has an understanding with Petronas Gas on competition whereby there shall be no poaching of each other’s customers.
In February 2012, Gas Malaysia signed new Gas Supply Agreement with Petronas to increase gas supply from 382 to 492 MMScfd by 2015. With increased capacity, the company is able to serve new customers.
Financials
FY2011 net profit declined 23% YoY to RM229.2m following the revision of gas prices by the government. Earnings for the year dropped despite revenue rising 10.7% YoY. As a result FY2011 EBITDA margin fell to 16.5% from 23.3% in FY2010. Similarly, net profit margin dropped to 11.5% in FY2011 from 16.5% in FY2010.
Risk of government regulation
Buying and selling price of natural gas is regulated by the Energy Commission, thus margins are fixed. In May 2011, the government announced a new tariff which narrowed the buying and selling margin to RM2.02 from around RM4 previously.
As a result, 2011 earnings dropped due to the new tariff. Natural gas price is subject to revision every 6 months but the Energy Comission has yet to issue an instruction for second revision since June 2011.
Attractive dividend
The management has committed a dividend policy of a minimum payout ratio of 75%. From 2009 to 2011, it had previously paid out 95%, 100% and 90% of net profit respectively.
Assuming a payout ratio of between 75% and 100%, Gas Malaysia’s dividend yield could range between 6.1% and 8.1% based on 2011 net profit and retail price of RM2.20.
Management has earmarked capex of RM130-140 million this year followed by RM40m per year for 2013 and 2014 respectively. We expect the capex will not affect its dividend payout as the company has no borrowings with cash reserves of rm327m as of 31 Dec 2011.
Valuation and recommendation
Based on preliminary study, we value Gas Malaysia at an indicative target price of RM2.61 based on DCF valuation (discount rate of 9.7%, terminal growth rate of 2%).
We recommend investors to Subscribe as Gas Malaysia is a quality stock that provides stable dividend and resilient earnings under current market uncertainty. We will be issuing a full IPO report soon.
mabs- Member
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Re: Gas Malaysia IPO note
the writer want to unload?
phoenix777- Moderator
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Re: Gas Malaysia IPO note
natural gas prices has plummeted in recent months to all time low. . .
Cals- Administrator
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Re: Gas Malaysia IPO note
50 50 lor........wait for open mkt n day tradeCals wrote:natural gas prices has plummeted in recent months to all time low. . .
phoenix777- Moderator
- Posts : 13701 Credits : 16143 Reputation : 1704
Join date : 2011-02-03
Location : Malaysia
Job/Hobbies : eating good food
Stock Exposure : 1 year
Stock Portfolio : empty handed
Re: Gas Malaysia IPO note
phoenix777 wrote:50 50 lor........wait for open mkt n day tradeCals wrote:natural gas prices has plummeted in recent months to all time low. . .
indeed that is what you always do best phoe
Cals- Administrator
- Posts : 25277 Credits : 57721 Reputation : 1766
Join date : 2011-09-08
Location : global
Comments : “My plan of trading was sound enough and won oftener that it lost. If I had stuck to it Iâ€d have been right perhaps as often as seven out of ten times.â€
Stock Exposure : Technical Analysis / Fundamental Analysis / Mental Analysis
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