Maybank Investment Banking Group (MIBG) in the latest ESG@Maybank IBG report stated that recent concerns over failing crude oil prices are overblown.
Given the significant time lag between crude oil prices and domestic gas prices, MIBG expects higher year-on-year average domestic gas prices in 2023.
This implies higher spreads for Gas Malaysia in the financial year 2023, with the net profit impact further amplified by the absence of Cukai Makmur.
Note that Gas Malaysia Bhd (GMB) (240409-T) sells, markets and distributes natural gas as well as develops, operates and maintains the natural gas distribution system network within Peninsular Malaysia.
MIBG reiterates “buy” for the stock, with an unchanged RM 3.80 discounted cash flow-based transfer pricing. Recall GMB’s retail profit is based on an undisclosed percentage of its gas cost, which is referenced to PETRONAS’ Malaysia reference price.
The Malaysia reference price, in turn, is ultimately linked to crude oil prices (Brent). With Brent having declined year to date to <USD80/barrel, concerns over GMB’s earnings outlook have emerged, which have resulted in recent share price weakness.
Having explored the mechanics, MIBG notes there is a significant 8 months lag between Brent and the applicable Malaysia reference price. Hence given current Brent run rates and assuming a USD60/barrel price in Apr 2023, Maybank estimated the average applicable Malaysia reference price for 2023 would still be >10% higher year-on-year.
This would imply a higher spread for GMB in the financial year 2023, with the net profit impact further amplified by the absence of Cukai Makmur. Maybank saw earnings peaking in quarter one of 2023.
