Maybank IB ups Gas Malaysia TP to RM3.80 after tariff hike

by **Cals** Fri 25 Apr 2014, 02:08

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Thursday, 24 April 2014 12:06

KUALA LUMPUR (Apr 24): Maybank Investment Bank Bhd maintained its 'hold' rating on Gas Malaysia Bhd at RM3.63 with a higher target price of RM3.80 (from RM3.50) after taking into account the tariff hike in gas price.

The research house had also revised up earnings forecasts for FY14, FY15 and FY16 by 6%, 4% and 2% respectively, accounting for higher volume assumptions and the higher price of gas.

“Our revised 2014 earnings forecast is based on an 8% gas volume growth and takes into account the new gas price and costs effective May 1, 2014,” said Maybank in a note today.

Two weeks ago, Gas Malaysia Bhd obtained government approval for a 20% hike in blended gas tariffs to RM19.32/mmBTU from RM16.07/mmBTU.

The hike in gas cost followed an earlier 14.89% rise in electricity tariffs in December, which was in line with the government’s aim to cut subsidies and reduce its deficit.

The management of Gas Malaysia assumed that the cost of regulated gas was raised to RM15.55/mmBTU from RM14.05/mmBTU, while the cost of LNG-sourced gas has been set at RM44.88/mmBTU.

Gas Malaysia’s cost of regulated gas will be raised by RM1.50/mmBTU every six months, while the supply split between regulated and LNG-sourced gas will be reviewed every 12 months.

Maybank believes that the scheduled cut in regulated gas quota in 2014 may have been deferred, as LNG-sourced gas only accounts for 6% of total volume for the period of May 2014 to April 2015.

“This would be a positive development, as it implies a lower blended cost than our earlier estimate, thus a higher volume threshold that preserves Gas Malaysia’s existing MYR2.02/mmBTU spread,” said the research house.