Gas Malaysia Berhad (GMB) reported an increase in earnings by +53.8% year-on-year (yoy) but declined by -10.9% quarter-on-quarter (qoq) to RM95.7m. For the cumulative 9 months, earnings were up by +63.4%yoy to RM294.3m, which is within the Street’s expectations at 73% and 79% of full-year earnings forecasts respectively. The increased profit was mainly due to higher gross profit, higher finance income, lower finance cost and higher contribution from the Group’s joint venture companies, and partially offset by higher administrative expenses.
MIDF has retained its BUY call on GMB with TP at RM3.92. It reiterates its positive stance with GMB. With the easing of border restrictions post-pandemic, and the long-term interest in natural gas as part of the clean energy transition, the elevated prices for natural gas will continue to have a positive impact on GMB’s financial performance in FY22.
Revenue higher by +35% yoy. Revenue-wise, GMB reported an increase by +34.8% yoy and +4.9% qoq to RM1.85 billion. For the cumulative 9 months, revenue was up by +38.7% yoy to RM5.43b. This was attributed by higher average natural gas selling price, in tandem with global market price, mitigated by lower volume of natural gas sold during the current quarter.
Resiliency to continue. As Malaysia’s economy is expected to improve and recover until the end-year, and that activities within the industrial and domestic premises continue to normalise post-pandemic, GMB is belived to continue to operate efficiently. Additionally, the group will remain competitive and opportunistic to expand its operations in the near term.
Uptrend expected. GMB’s earnings had been growing in line with the Henry Hub price, with an estimate hike of over +50%, which could bode well for the group in FY22. Geopolitical tensions and shortages of natural gas in Europe, as well as the upcoming winter season in the Northern Hemisphere and recovery of China’s economy, continue to push prices of natural gas higher globally. In line with the hiking prices, it is believed that GMB will continue to remain follow the uptrend earnings-wise.
Additionally, revenue had been improving in the 9 months period of FY22. Earnings had also been on the rise at a 5-year CAGR of +8.6%. Observing GMB’s recent financial performance, MIDF Research holds the opinion that its revenue and earnings will continue to see an uptrend. However, it should be noted that the risks of hiking freight rates, one-off refinery taxes and lower sale volume for natural gas locally and regionally remain.
No changes to earnings estimate. Considering that GMB’s earnings is in line with the research house’s projection, it makes no changes to its earnings estimates. As such, it maintains its target price (TP) for the group at RM3.92 per share; based on pegging PER of 11.5x to revised EPS for next year of 34 sen.
Risks such as the current geopolitical tensions, demand slowdown, tanker traffic disruptions and unusual weather in key gas production areas, are likely to remain obstacles.
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