Gas Malaysia IPO

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Gas Malaysia IPO

Post by mabs on Wed 23 May 2012, 09:03

Investment Highlight

Stable earnings from its monopolistic business model. Gas Malaysia is the only company licensed under the Gas Supply Act by the Energy Commission to sell, market and distribute natural gas in Peninsular Malaysia besides government-owned Petronas Ga Berhad.

Attractive dividend payout. Gas Malaysia is committed to reward the shareholders with a dividend payout ratio of 100% in 2012F and a minimum of 75% payout in subsequent years onward. This translates into a decent dividend yield of 5.5% and 5.4% for 2012F and 2013F respectively. We believe the Group shall not have any difficulty of declaring even higher dividend of more than 75% payout in view of its current net cash of RM227m or net cash per share of 18 sen (zero gearing) and lower capex expected in 2013F onwards (estimated RM40m p.a., significantly down from 2012F’s capex of RM140m).

Growing demand of natural gas in Malaysia. Natural gas is being viewed as an efficient energy source compared to other common fuel such as LPG, coal and diesel as it provides more energy output per weight and is also considered as a cleaner fuel. More importantly, it is one of the cheapest energy sources which is gaining popularity in the industrial usage as it provides competitive cost advantage to the users in view of rising energy prices.

Wide strategic pipeline coverage throughout Peninsular Malaysia. Gas Malaysia has built approximately 1,800km of underground pipelines throughout Peninsular Malaysia in order to deliver gas to its industrial, commercial and residential customers. Furthermore, the Group is able to further extend its coverage to other growing industrial areas efficiently without incurring heavy capital expenditure.

New source of gas supply to meet rising demand. Petronas has developed the Malaysia’s first LNG import terminal in Melaka. Thus, the shortage of gas supply since 2007 will be met by the commencement of Melaka regasification plant which is expected to be ready in Sept 2012.

Reaching a wider customer base. Gas Malaysia principally market and distribute natural gas to customers in Peninsular Malaysia initially consuming less than two MMScfd and below of natural gas. However, the Group is able to ink a new gas supply agreement to increase its supply to five MMScfd with effect from Jan 2013.

Strategic shareholder. Petronas Gas Berhad, which is also the sole supplier of natural gas for the Group, is holding 14.8% of Gas Malaysia’s stake upon listing. By having such a strong strategic relationship with its supplier, we believe Gas Malaysia is able to reduce its risk of dependency on supply of natural gas.


Valuation & Recommendation

Subscribe with a target price of RM2.61. Our non-rated target price is based on DCF valuation method (with discount rate of 9.7% and terminal growth rate of 2%) which indicates implied yield of 4.7% and 4.6% for 2012F and 2013F respectively or implied 2012F PER of 21.4x and 2013F PER of 16.5x. Our valuation also implies 20% discount to its peer, Petronas Gas’ 2013F consensus PE of 20.5x.

Our fair value represents 19% upside to indicative IPO price of RM2.20. The listing of Gas Malaysia shall provide a safe investment opportunity for investors under current market uncertainty.


Background

Gas Malaysia Berhad principally sell, market and distribute natural gas to industrial, commercial and residential customers. It also constructs and operates the Natural Gas Distribution System (NGDS) within Peninsular Malaysia. Therefore, the group has a network of natural gas pipelines connecting customers to the Peninsular Gas Utilisation transmission system (PGU).

The group’s principal products as illustrated below:

Principal Products

1. Natural gas – Natural gas is found naturally underground. It is an odourless, colourless, gaseous hydrocarbon mixture made up of methane (CH4) and a small percentage of other light hydrocarbons. Total of approximately 1,800 km natural gas pipelines in operation across Peninsular Malaysia serving 698 industrial customers, 482 commercial customers and 10,926 residential customers for natural gas.

2. Liquefied Petroleum Gas (LPG) – It is a mixture of gas, mainly 30% propane (C3Ha)
and 70% butane (C4H10). It is normally created as a by-product of petroleum refining and from the production of natural gas. In year 2000, the group expanded its business by reticulated LPG to one industrial customer, 1,112 commercial customers and 22,038
residential customers.


Raw Materials Supplier

The Group sources all of its gas supply from Petronas via Petronas Gas Berhad (PGB) using the PGU. Gas, extracted from various domestic gas fields off the coast of Terengganu as well as West Natuna Indonesia and the PM3 Commercial Arrangement Area (CAA) between Malaysia and Vietnam, is processed at PGB’s gas processing plants in Kerteh and Paka, Terengganu before it enters the PGU. Gas from Malaysia-Thailand Joint Development Area is processed at the gas separation plants in Songkhla province, Thailand before entering the PGU through the Trans-Thailand Malaysia pipeline network.


Future Plans and Strategies

Widening its customer base. The ability to satisfy Peninsular Malaysia’s demand for gas has been constrained since 2007 as there continues to be challenges in bringing new supply sources to the market. The apparent consumption of natural gas in Malaysia grew from about 315b cubic feet in 1990 to an estimated 1260b cubic feet in 2012. Due to the anticipated further increase in consumption, Petronas taking steps in building a LNG re-gasification terminal. The LNG import terminal in Malacca is expected to be ready by end-June 2012. With that, Gas Malaysia working closely with Petronas to secure additional allocation of natural gas supply to further expand its market.

Expanding the product offerings. Furthermore, the Group also diversify into Combined Heat and Power (CHP) to further cater for the rising demand of gas from its existing customers and to further widen its customer base. CHP is an energy efficient system that generates electricity and thermal energy with a single fuel source.


Investment Merit

1. Stable earnings from its monopolistic business model. Gas Malaysia is the only company licensed under the Gas Supply Act by the Energy Commission to sell, market and distribute natural gas in Peninsular Malaysia besides government-owned Petronas Gas Berhad.

2. Attractive dividend payout. Gas Malaysia is committed to reward the shareholders with a dividend payout ratio of 100% in 2012F and a minimum of 75% payout in subsequent years onward. This translates into a decent dividend yield of 5.5% and 5.4% for 2012F and 2013F respectively. We believe the Group shall not have any difficulty of declaring even higher dividend of more than 75% payout in view of its current net cash of RM327m or net cash per share of 25 sen (zero gearing) and lower capex expected in 2013F onwards (estimated RM40m p.a., significantly down from 2012F’s capex of RM140m).

3. Growing demand of natural gas in Malaysia. Natural gas is being viewed as an efficient energy source compared to other common fuel such as LPG, coal and diesel as it provides more energy output per weight and is also considered as a cleaner fuel. More important, it is one of the cheapest energy source which is gaining popularity in the industrial usage as it provides competitive cost advantage to the users in view of rising energy prices.

4. Wide strategic pipeline coverage throughout Peninsular Malaysia. Gas Malaysia has
built approximately 1,800km of underground pipelines throughout Peninsular Malaysia in order to deliver gas to its industrial, commercial and residential customers. Furthermore, the Group is able to further extend its coverage to other growing industrial areas efficiently without incurring heavy capital expenditure.

5. New source of gas supply to meet rising demand. Petronas has developed the Malaysia’s first LNG import terminal in Melaka. Thus, the shortage of gas supply since 2007 will be met by the commencement of Melaka regasification plant which is expected to be ready in Sept 2012.

6. Reaching a wider customer base. Gas Malaysia principally market and distribute natural gas to customers in Peninsular Malaysia initially consuming less than two MMScfd and below of natural gas. However, the Group is able to ink a new gas supply agreement to increase its supply to five MMScfd with effect from Jan 2013.

7. Strategic shareholder. Petronas Gas Berhad, which is also the sole supplier of natural gas for the Group, is holding 14.8% of Gas Malaysia’s stake upon listing. By having such a strong strategic relationship with its supplier, we believe Gas Malaysia is able to reduce its risk of dependency on supply of natural gas.


Financial Review & Outlook

Unimpressive historical earnings growth affected by compressed natural gas tariff. Gas Malaysia’s total revenue has increased to RM2,000.2m in 2011 compared to RM1,879.6m in 2008. This represents a 3-year CAGR of 2.1%. However, during the same period, the Group registered –5.2% CAGR in its Profit after tax (PAT) mainly due to declining operating margin from 18.8% in 2008 to 14.2% in 2011 as a result of government’s tariff revision in June 2011 which compressed the Group’s margin (natural gas margin decreased substantially from RM3.95/MMBtu to RM2.02/MMBtu).

Going forward, we expect the Group’s PAT to further decline in 2012F before recovering gradually from 2013F onwards. We believe the Group’s topline will continue to enjoy healthy growth with CAGR of 33.6% from 2011 till 2014 on the back of strong consumption and new gas supply source comes on stream. Whilst, the Group’s PAT is expected to further decline by 32% from RM229.2m in 2011 to RM156.5m in 2012F as impact of compressed natural gas tariff continues to weigh on its operating margin (further decline from 14.4% in 2011 to 7.0% in 2012F) before we could witness a rebound in 2013F onwards as margin stabilise and PAT grows at 3-year CAGR of 4.4% from 2011 till 2014F.


Risks

Operating in highly regulated industry. Due to the nature of the business, Gas Malaysia is being advised to follow the rules and regulations that stated in contracts or agreements. Failures in maintaining gas supply licences and comply with the required legislation will limit the Group’s ability in operating business within the industry.

Volatility of international market prices for crude oil and medium fuel oil (MFO). As operating in the oil and gas industry, Gas Malaysia cannot assure the price of the natural gas will be maintained all the time. The volatility of the international market prices of other energy resources will cause the price of the natural gas to be fluctuating.

Complex and hazardous operation process. The process of allocating, processing and distributing natural gas to customers’ facilities will exposed to certain level of risks. Those unforeseen risks like failure in technical, lack of awareness by the employees and et cetera may directly affect the Group’s sales performance, and thus lower down the Group’s value.

Competition with other fuel substitutes. Intervention of Malaysia’s government on the buying and selling prices of natural gas to either equivalent or higher price may caused natural gas having high competitive with its substitutes.

Pipelines damage. Pipelines that largely used to transfer natural gas to Group’s customers could get damages due to different kind of possibilities.

Raw material supplier. The Gas Supply Agreement between Gas Malaysia and Petronas will be expired in December 2012 indicating the Group need to sign a new agreement with Petronas by exposing to the contract negotiation risks as well as gas supply risks.


Valuation and Recommendation

Subscribe with a target price of RM2.61. Our non-rated target price is based on DCF valuation method (with discount rate of 9.7% and terminal growth rate of 2%) which indicates implied yield of 4.7% and 4.6% for 2012F and 2013F respectively or implied 2012F PER of 21.4x and 2013F PER of 16.5x. Our valuation also implies 20% discount to its peer, Petronas Gas’ 2013F consensus PE of 20.5x.

Our fair value represents 19% upside
to indicative IPO price of RM2.20. The listing of Gas Malaysia shall provide a safe investment opportunity for investors under current market uncertainty.
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Re: Gas Malaysia IPO

Post by Cals on Sun 10 Jun 2012, 22:17

Strong demand expected for Gas Malaysia's IPO
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Gas Malaysia’s hot IPO
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Gas Malaysia Q1 profit drops to RM46.07m

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Re: Gas Malaysia IPO

Post by Cals on Tue 12 Jun 2012, 21:28

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Gas Malaysia jumps on listing debut
by hlk Yesterday at 09:21

+
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Gas Malaysia Bhd saw its shares rise 12.27 percent on its market debut on Monday, outperforming the Malaysian benchmark stock index's 0.70 percent increase.

The share price performance flies in the face of the company's first quarter results showing a more than 50 percent drop in earnings.

The country's sole supplier of natural gas to the non-power sector announced last week a 53.5 percent drop in net profit year-on-year, dented by lower margins even though revenue rose 9.2 percent to RM506.58 million from a year ago.

Analysts said they believed the drop was a one-off event and earnings would recover in the coming quarters.

The Malaysian government regulates the natural gas industry.

It raised the purchasing price of natural gas by over 25 percent in June last year, while the selling price increased by about seven percent. -- Reuters

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Re: Gas Malaysia IPO

Post by Cals on Tue 12 Jun 2012, 21:42

GASMSIA 5209

no past trend or levels, like trading blindly

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Re: Gas Malaysia IPO

Post by kppl on Tue 12 Jun 2012, 21:46

got past minute and past hours Tongue
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Re: Gas Malaysia IPO

Post by Cals on Tue 12 Jun 2012, 21:52

ok jap , dah lupas Rofl

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can you name me the current S & R?

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Re: Gas Malaysia IPO

Post by kppl on Tue 12 Jun 2012, 23:29

untuk hari ini....
2.4 2.47 Rofl
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Re: Gas Malaysia IPO

Post by Cals on Tue 12 Jun 2012, 23:35

kalau macam ini?

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Re: Gas Malaysia IPO

Post by kppl on Tue 12 Jun 2012, 23:54

are you in it?
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Re: Gas Malaysia IPO

Post by Cals on Tue 12 Jun 2012, 23:55

kppl80 wrote:are you in it?

not a single unit Innocent

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Re: Gas Malaysia IPO

Post by kppl on Tue 12 Jun 2012, 23:59

Cals wrote:
kppl80 wrote:are you in it?

not a single unit Innocent

really difficult to predict IPOs these days....
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