Hot Stock Gas Malaysia rises 4%, possibly on good earnings visibility

by **Cals** Thu 24 Oct 2013, 13:19

Hot Stock Gas Malaysia rises 4%, possibly on good earnings visibility

Business & Markets 2013

Written by Jeffrey Tan of theedgemalaysia.com

Thursday, 24 October 2013 12:33

KUALA LUMPUR (Oct 24): Gas Malaysia Bhd saw its share rise 4% amid reports that it will continue to exhibit strong earnings visibility.

At 12.13 pm today, Gas Malaysia rose 11 sen or 2.7% to reach a high of RM4.17 on 553,500 shares. It was among the top ten gainers.

In a note today, Affin Investment Bank Research said Gas Malaysia had successfully secured customers’ undertaking for an additional 33 million standard cubit feet per day (mmscfd) of gas volume for FY15, out of 40 mmscfd.

“We are optimistic that the balance 7 mmscfd of gas volumes can be ‘offloaded’ to interested customers in the near term,” said Affin IB research analyst Chong Lee Len.

“This means that the additional gas supply from Petronas is fully booked, which underpins our largely consensus-centric three year earnings per share (EPS) compound annual growth rate of 11% (FY12-FY15).”

Chong said she has downgraded the energy provider’s stock at RM4.06 to ‘reduce’ rating despite a higher two-stage dividend discount model derived target price (TP) of RM3.65 per share.

She said her TP had already factored in a blue-sky scenario of 100% dividend payout over the next two years.

“Nevertheless, we raise our FY14-15 earnings by 4-5%, taking into account a higher throughput guidance. All in, we project the above-mentioned EPS to be driven largely by higher gas volumes and stable operating margins,” she said.

“Whilst balance sheet is strong, we do not expect the company to return excess cash to shareholders in the near term, where net cash as at June 2013 stands at RM304 million.”

Chong also mentioned Petronas’ President Tan Sri Shamsul Azhar recently confirmed that Petronas had started billing gas users under a two-tier pricing regime.

“For Gas Malaysia, we gather that the group continues to buy gas from Petronas at RM14.05 per mmbtu,” she said.

“Having said that, we expect the Government to announce a new gas price regime latest by January next year.”

Chong opined that the price changes would not have any impact on Gas Malaysia’s current operating margin of RM2.02 per mmbtu, adding that the firm is well insulated as customers have booked gas volumes up to FY15.

Meanwhile, Kenanga Research said Gas Malaysia would see immediate technical support and resistance at RM3.92 and RM4.08 respectively.