Gas Malaysia, which is en route for a Main Market listing on
Bursa Malaysia on 11 Jun 2012, is the only company licensed under the GSA by
the authority to supply and sell reticulated natural gas in Peninsular
Malaysia. Earnings certainty for Gas Malaysia is fairly high given that the
buying and selling of gas (under the GSA) are regulated by a pricing mechanism
which also spells out the margin spread. We value the company at RM2.42/share,
based on required 5% net yield. This implies 20.5x PER of CY13 earnings, which
is also fairly in line with the valuation of Petronas Gas. Netting off its net
cash, it could potentially be valued at RM2.60/share, assuming the targeted PER
of 20.5x remains unchanged. Gas Malaysia is more than a dividend play, given
its earnings certainty with a low yearly capex requirement. At the offer price
of RM2.20, it offers net yield of 5.5%. Coupled with the potential upside to
RM2.42/60, the stock offers >15% in total return.
A gas company. Gas Malaysia Bhd (GMB) is the only company licensed under the GSA by
the Energy Commission to supply and sell reticulated natural gas in Peninsular
Malaysia up until 1 September 2028. Currently, GMB has approximately 1,800km of
pipelines in operation across Peninsular Malaysia serving 701 industrial
customers, 546 commercial customers and 10,735 residential customers for
natural gas. In relation to the supply
of LPG, GMB serves one industrial customer, 1,117 commercial customers and 22,630
residential customers.
Prices are set for
the next 4 years. Historically, the
movement of the buying and selling prices was in line with the movement in the
crude oil price and its products. However, since the Government regulated the
buying and selling price at RM17.99/mmbtu and RM22.06/mmbtu respectively in Aug
2008, the prices were revised in Mar 2009 and thereafter set to be reviewed
every half-yearly from 1 Jun 2011 onwards. In May 2011 in fact, the Government
has set a fixed revision of RM3.00/mmbtu every six months starting from 1 Jun
2011 to Dec 2015.
Defensive earnings
supported by pricing mechanism.
Earnings are expected to decline over the years till 2015 due to the regulated pricing mechanism
where the margin spread will narrow over
time. We project FY12 net profit to contract to RM151m from RM229m in FY11.
This will further drop to RM146m in FY13 before touching RM136m in FY14m
despite the top line growing at 20%-40% a year. Our buying and selling prices assumptions
are based on the regulated pricing mechanism with volume growth of 4%-5% over
the period. We have also factored in a RM135m capex for FY12 and RM40m each for
FY13-FY14. Going forward, the annual capex should be maintained at RM40m if
there are no major expansions.
Strong net cash will
enable high dividend payouts.
Although expecting lower earnings, GMB is expected to pay out 100% of
its earnings, which will translate into an attractive net yield of 5%-6% for
FY12-FY14. Its earnings quality and dividend payouts are sustainable given the
pricing mechanism. Assuming the buying and selling prices of gas are to stay
from 2015 onwards, its dividend is expected to be higher. In addition, GMB
boasts a strong balance sheet with a net cash position of RM327m in FY11. The
net cash level is set to drop to RM240m in FY12 on the back of a higher capex of
RM135m before increasing again to RM286m by FY14.
Source: Kenanga
No comments:
Post a Comment