Gas Malaysia’s 1Q results within expectations

by **Cals** Mon 19 May 2014, 23:57

Business & Markets 2014

Written by Kenanga Investment Bank Bhd

Monday, 19 May 2014 10:01

Gas Malaysia Bhd
(May 16, RM3.60)
Maintain underperform with target price of RM3.54: Gas Malaysia’s results for the first quarter ended March 31 of financial year 2014 (1QFY14) came within expectations with net profit of RM41.6 million, which accounted for 22% of both our and consensus’ full FY14 estimates. No dividend was declared, as expected.

Net profit for 1QFY14 of RM41.6 million rose 4% year-on-year (y-o-y) from RM40.1 million in 1QFY13 on the back of an 8% hike in revenue to RM580.6 million from RM535.4 million previously. This was mainly driven by 10.2% growth in gas volume following the 40 million standard cu ft per day (mmscfd) gas supply secured from the Melaka regasification terminal (RGT) in July 2013 and another supply of 30mmscfd gas, which started in January this year.

Sequentially, 1QFY14 net profit grew 4% from RM40.2 million in the preceding quarter, although the top line dipped 4% from RM604.2 million in 4QFY13. This was partly attributed to improved operational efficiency, which was reflected in its improved operating margin of 9% from 8% earlier as operating cost reduced.

With barely any change in its profit margin spread under the new tariff, FY14 is expected to be another strong year with full-year earnings impact from the 40mmscfd gas supply which started in July 2013 and another additional 30mmScfd commencing January 2014 from the Melaka RGT.

However, it may not be easy for Gas Malaysia to sustain its profit margin spread going forward given the dynamics of liquefied natural gas prices. Nonetheless, the forward business volume will be supported by the last portion of the 40mmscfd additional gas supply from the Melaka RGT.

[You must be registered and logged in to see this image.]

[size][color]
We make no changes to our FY14 and FY15 estimates. We have rolled over our valuation base year to calendar year 2015, thus our new target price is now RM3.54 per discounted cash flow (DCF) share from RM3.41 per DCF share previously. Risk to our call is a surprise increase in gas supply allocated by Petroleum Nasional Bhd and wider margin spread. — Kenanga Investment Bank Bhd, May 16

This article first appeared in The Edge Financial Daily, on May 19, 2014.
[/color][/size]