Maybank Investment Bank (Maybank IB) expects a smaller decline of domestic gas prices but see no strong re-rating catalysts in the near term for Gas Malaysia Bhd (GMB).
“However, GMB’s more than 6% dividend yield should provide some degree of downside support, in our view. On a relative basis, GMB remains our preferred pick among the gas utilities,” it said in its research note yesterday (Feb 19).
The research house revised its FY23 net profit forecasts lower by 3% while increasing its FY24 and FY25 forecasts by 4 per cent each following revisions to of its selling price and spread assumptions.
The group’s target price (TP), which is discounted cash flow (DCF)-based assuming 8.1% weighted average cost of capital (WACC) and 2% long-term growth, is consequently raised to RM3.40 from RM3.20.
“We assume a 75% payout ratio going forward, which implies more than 6% dividend yields. GMB will release 4Q23 results after market close today,” Maybank IB said.
Domestic gas prices, Petronas’ Malaysia Reference Price(MRP), has lagged Brent crude oil prices by 6 to 7 months. Given the trajectory of Brent prices since early 2023, we expect average domestic gas prices to trend lower by 5% quarter-on-quarter (QoQ) in 4Q23, and higher half-on-hald (HoH) by 11% in 1H24.
“On a full-year basis, we now expect domestic gas prices to decline by 5 to 10% YoY in 2024, a smaller quantum relative to our previous expectation of more than 10% decline,” it said.
The research house said GMB’s retail profit, based on an undisclosed percentage, which we estimated of around 5% of around its gas cost., should trend similar to domestic gas prices.
“We believe GMB’s volume would have bottomed in FY23, having registered QoQ growth in 3Q23, which is the first since end-2021.
“We expect a 2% volume compound annual growth rate (CAGR) in FY24 to FY25. Note that only the retail segment bears volume risk, the pipeline distribution segment runs on a revenue cap model.
