GASMSIA’s 1HFY24 results topped forecasts due to higher-than- expected margin spread which was partly due to better ASP that pushed retail margin higher. Having said that, we keep our sales growth assumption (+4%/+3% in FY24/FY25) while margin spread is set to reduce for client’s contract extension due this year-end. We raise FY24F earnings by 8% and TP to RM3.61 (from RM3.59). It remains a MARKET PERFORM for its attractive dividend yield of >6%.

1HFY24 results above. GASMSIA’s 1HFY24 results beat expectations with core profit of RM212.3m making up 58%/56% of house/street’s full-year forecast. The key variance against our forecast came from higher-than-expected margin spread, partly due to a better Malaysia Reference Price (MRP) which led to improved retail margin. It declared a 1st interim NDPS of 6.31 sen (ex-date: 04 Oct; payment date: 25 Oct) in 2QFY24, against 5.72 sen paid in 2QFY23.

YoY. Despite revenue falling 14% to RM3.86b, its 1HFY24 core profit grew 10% to RM212.3m. This was due to gain in operating scale on a higher sales volume (+6%). The decline in topline was largely due to the contraction in MRP which fell 18% to RM43.71/mmbtu from RM53.16/mmbtu previously.

QoQ. Its 2QFY24 core profit rose 8% to RM110.1m, in tandem with a 6% jump in revenue as MRP grew 11% to RM45.90/mmbtu while gas sales volume remained flattish at 38.45m GJ.

Forecasts. We raise our FY24 net profit forecasts by 8%, as we increase EBITDA margin to 8.0% from 7.5% previously but maintain FY25 and long-term EBITDA margin at 7.5%. We also maintained our FY24-FY25 sales volume growth assumption unchanged at 4%/3% and long-term growth rate of 2%.

Valuations. Post earnings revision, we upgraded our DCF-derived TP slightly to RM3.61 (from RM3.59 previously) which is based on unchanged WACC of 6.5% and a TG of 2%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by use (see Page 5).

Investment case. We like GASMSIA for its: (i) strong market position, being a key natural gas retailer in Malaysia, (ii) strong earnings visibility underpinned by its ability to retain customers, typically via 3-year contract, and (iii) strong free cash flow generation, anchoring a dividend yield of >6%. However, its valuations are fair at the current level.Maintain MARKET PERFORM.

Risks to our recommendation include: (i) regulatory risk, (ii) volatility in margin spread of non-regulated business, and (ii) economic slowdown hurting demand for gas.

Source: Kenanga Research - 28 Aug 2024