Gas M’sia – a growth story

Analysts see bright outlook and a dividend-yielding stock in the long term

WITH rosy prospects, Gas Malaysia Sdn Bhd a unit of MMC Corp Bhd
will make a compelling growth story for investors upon listing,
according to analysts. Eventually, it may even rank high as a sound
dividend-yielding stock. “It will be a period of growth for Gas
Malaysia for the next two to three years, especially with more gas
supply coming into place as the liquefied natural gas (LNG) plant in
Malacca is getting ready,” OSK Research head Chris Eng told StarBiz. He
said Gas Malaysia was constrained by gas supply but, with the second
LNG terminal expected to be ready by year-end, it could provide gas to
more customers. Petroliam Nasional Bhd (Petronas)
had earlier announced the possibility of building a second LNG
receiving and re-gasification terminal while the LNG import terminal in
Malacca is expected to be ready by end-June next year. “In the short term, Gas Malaysia will be a growth story but, beyond that, it will be dividend play,” Eng opined. Another
analyst who shares Eng's opinion said Gas Malaysia could be a dividend
stock given its stable income and protected margins.
However, he said, it was still too early to pre-empt what kind of Gas Malaysia MMC was trying to put up for listing. “It
(Gas Malaysia) could be a dividend stock but we do not know for sure.
It has a healthy financial position, stable income and protected
margins,” the analyst said, adding that Gas Malaysia should have a
“profound business growth story to attract investors.” Last week, MMC indicated plans for a possible listing of its three units, namely Gas Malaysia, Malakoff Bhd and Johor Port Bhd, with an estimated combined market capitalisation of up to RM14bil. As it stands now, MMC's group managing director Datuk Hasni Harun had guided that Malakoff was worth some RM7bil, Gas Malaysia RM5bil and Johor Port between RM1.5bil and RM2bil. Eng said the valuation of RM5bil guided by MMC would be worth almost double what it currently valued them. However,
Kenanga Research said there was a lack of details on the valuation, but
opined that the RM5bil market capitalisation of Gas Malaysia would
“somewhat fetch a premium” with its valuation. MMC currently holds a 41.8% stake in Gas Malaysia with the remaining held by Petronas Gas Bhd (20%), Tokyo Gas-Mitsui & Co (Holdings) Sdn Bhd (25%) and the rest by Shapadu Holdings. The
group has yet to submit any application to the Securities Commission
for its listing. It was currently conducting financial and technical due
diligence, according to Hasni. “We are planning to unlock value via possible listing of our stable of companies,” he said. At
a recent briefing, Hasni said MMC would need to get approval for the
listing of Gas Malaysia's other shareholders, namely Petronas Gas and Tokyo Gas-Mitsui & Co. Hasni
said the proposed listing would only be brought to the board level of
MMC for approval once it had been approved by Gas Malaysia's
shareholders. [You must be registered and logged in to see this image.] With
rosy prospects, Gas Malaysia Sdn Bhd – a unit of MMC Corp Bhd – will
make a compelling growth story for investors upon listing. File picture
shows a Gas Malaysia staff carrying out general maintenance work at a
service station.
“The plan (for listing) is still at an
initial stage. They haven't submitted anything. But they are trying to
resolve some terms,” an analyst said, without disclosing details. He, however, said MMC was progressing on schedule for the listing of Gas Malaysia. OSK's
Eng did not expect Gas Malaysia to be listed in at least another two to
three months as the company would need to get all the necessary
approvals from the regulators. Kenanga Research expects the listing of MMC's units to “kick off with Gas Malaysia by June 2011.” Gas
Malaysia is the sole distributor and retailer of natural gas to
non-power companies in the country which consume less than two mmbtu per
day. It supplies its gas to 33,707 residential and 691 industrial
customers. In 2010, the total gas sold by Gas Malaysia was 117.8
British thermal units (mmbtu) throughout the peninsula. The total sales
volume is projected to increase by 10% to 129.9 mmbtu in 2011. As
at February 2011, Gas Malaysia's network of gas pipeline covered a
total of 1,726.6km (1,708.2km completed with 18.4km work in progress). Analysts
said the stock could attract institutional investors' interest to any
flotation of Gas Malaysia given its steady business, positive cashflow
and protected margins. “We expect Gas Malaysia to incur some
capital expenditure (capex) to meet customer demand but the risk is
quite minimal as it stands,” an analyst said. He said the main
risk surrounding the company would be the security of its gas supply and
its margin. Although Gas Malaysia has a protected margin due to a
favourable tariff-setting, its consumers have opted for lesser gas
supply which may affect its margin. Gas Malaysia is governed by the Gas Supply Act 1993 (Gas Act) and Gas Supply Regulations 1997. The
Gas Act enables Gas Malaysia to pass through any increases in gas cost
by Petronas to customers via increases in the gas tariffs; hence
providing the former with a stability to its revenue and profitability
to a certain extent. However, analysts said Gas Malaysia
continued to face ongoing challenge of securing more gas to meet the
growing demand of its customers. The expiry of its gas supply at
end-2011 may expose Gas Malaysia to contract renegotiation and gas
supply risks. Last July, Gas Malaysia signed a second
supplemental gas supply agreement with Petronas for an additional supply
of 82 million standard cu ft per day (mmscfd) natural gas. The
additional supply will expire by 2012. In August 2009, Gas Malaysia managed to secure a long term supply of 300 mmscfd from Petronas. In
an investor presentation, MMC said the demand for gas was almost
recession-proof due to a large pool of customers on the waiting list.
Gas Malaysia currently has 400 new potential industrial customers. For
the full year ended Dec 31, 2010 (FY10), Gas Malaysia's net profit rose
23% to RM298mil from RM243mil in FY09. Its revenue for FY10 registered a
3% growth to RM1.8bil.