Kenanga says it expects Gas Malaysia’s 4QFY23 net profit to inch up 3% sequentially backed by a higher sales volume coupled with better gas selling prices, in line with expectation. Hence, it keep forecasts, TP of RM3.33 and MARKET PERFORM call. The stock is supported by an above average dividend yield of >6%.
The house expects 4QFY23 net profit to come in at about RM88m, bringing cumulative FY23F net profit to about RM367m which will be in line with forecast. It expects better sales volume sequentially by c.4% in 4QFY23 given the improved business condition especially the glove sector which declining sales trend had already bottomed in 2QFY23 and reported first quarterly sales volume growth in 3QFY23 by 4% QoQ to 7.5m GJ after six quarters of declining sales trend while the glove makers also reported improved results in their latest quarterly results.’
To recap, sales volume in the glove sector always made up >30% of GASMSIA’s total sales volume (33% in FY19) in pre-COVID period and it hit record high of 38% in FY20. However, due to oversupply coupled with sharp decline in demand post pandemic, glove sector only made up to 20% of the group’s sales volume in 3QFY23. The sharp decline was partly due to it losing one of its glove makers to its competitor after the gas market liberalisation in 2022, and lower demand after the glove makers lost their market share to international peers, especially the Chinese makers which expanded capacity during
the pandemic period.
On the other hand, 4QFY23 gas selling price is also likely to improve further given the DOSM LNG price which rose 5% QoQ to RM43.96/mmbtu in 4QFY23 from RM41.87/mmbtu in the preceding quarter. The gas selling price is based on Malaysia Reference Price plus beta while MRP is the weighted-average price of LNG free-on-board exported from Malaysia as declared by DOSM. As such, the higher DOSM LNG should help to increase retail margin which is pegged to a percentage of gas selling price.
The house likes GASMSIA for its strong market position, being a key natural gas retailer in Malaysia, strong earnings visibility underpinned by its ability to retain customers, typically, via 3-year contract, and strong free cash flows generation anchoring a dividend yield of >6%.
However, there is a lack of catalyst given that its earnings have already peaked in FY22 with gas prices easing. Risks to recommendation include regulatory risk, volatility in margin spread of non-regulated business, and economic slowdown hurting demand for gas.
