Hot Stock Gas Malaysia rises 4.4% in early trades on gas tariff hike

by **Cals** Mon 14 Apr 2014, 17:42

Hot Stock Gas Malaysia rises 4.4% in early trades on gas tariff hike

Business & Markets 2014

Written by Jeffrey Tan of theedgemalaysia.com

Monday, 14 April 2014 11:27

KUALA LUMPUR (Apr 14): Gas Malaysia Bhd rose as much as 4.4% after the natural gas distributor said it had received official approval to increase natural gas tariff for the non-power sector in Peninsular Malaysia.

This will take effect from May 1, 2014. But the tariff for residential consumers and those consuming less than 600 MMBtu (retail commercial segment) annually will stay unchanged.

At 10.55 am today, Gas Malaysia gave up most of its early gains to trade at 4 sen or 1% higher at RM3.70, after rising to a high of RM3.82 earlier with a gain of 16 sen or 4.4%.

But analysts said today the profit margin outlook for Gas Malaysia remained uncertain.

In a note, CIMB IB research analyst Faisal Syed Ahmad said he was neutral on the announcement but he expected Gas Malaysia to maintain its current margins.

Faisal maintained an ‘add’ call with an unchanged TP of RM4.53.

Meanwhile, Kenanga Research’s Teh Kian Yeong said if the new purchase price is RM17.05/MMBtu, this implies a profit margin spread of RM2.27/MMBtu.

Currently, Gas Malaysia is buying gas from Petronas at an average price of RM14.05/MMBtu, translating into a margin of RM2.02/MMBtu.

“If this is the case, it is definitely positive to Gas Malaysia as it could make an extra RM0.25/MMBtu profit as the current spread is only RM2.02/MMBtu,” said Teh.

“However, the new selling price of RM19.32/MMBtu may not be good enough for Gas Malaysia to maintain its profit margin, unless the liquefied natural gas is at a subsidised price.”

He said FY14 is expected to be another strong year for Gas Malaysia with full-year earnings impact from the 40MMScfd gas supply.

Teh said Kenanga has maintained its FY14 and FY15 earnings estimates.

Kenanga has also maintained its ‘underperform’ call on the stock at RM3.66 with unchanged target price (TP) of RM3.41.

According to Faisal, the new average price for Gas Malaysia would be announced soon.