Gas Malaysia

Stable Cash with Net Cash Position

• Gas Malaysia (GMB) is one of the only two natural gas (NG) supplier in Peninsular Malaysia (the other is Petronas Gas).
• GMB will cover new market with initial demand of < 5mmscfd (previously 2mmscfd), giving more upside to GMB market share. GMB is effectively monopolizing this market segment with no direct competitor.
• GMB Margin is under government’s discretion.
• The demand for NG is likely to stay robust given its relative advantages and government’ initiatives to meet low emission target by 2020.
• GMB had signed agreement with PGB to increase NG supply to 492mmscfd by 2015 (currently 382mmscfd) on a step up basis, in order to meet the increasing demand.
• Stable earnings and cash flow, ensuring stable dividend payout. GMB will payout at least 75% of earnings, which translate into 4-5% net dividend yield.
• We believe the fair value for GMB is RM2.55 based on 22x FY13 P/E and 3.4x FY13 P/B.

Source: Hong Leong Investment Bank Research - 21 May 2012