Gas Malaysia - Melaka RGT is delayed yet again

Although the commencement of the Melaka RGT is expected to be delayed to 2Q13 from Jan 2013, we are keeping our OUTPEFORM call on GASMSIA as the delay will only impact its FY13 by 3%. We continue to like this asset-light utility company for its growth story with attractive dividend incomes. A potential 100% payout due to a lower capex required in 2013 will see the gross yield rising to 7% from 5% currently. Our DCF-derived TP is maintained at RM2.94/share.

Melaka RGT is delayed again.  Last Friday,  Petronas Gas Bhd (“PETGAS”, MP; TP: RM19.86)  announced that the official commencement of the Melaka Regasification Terminal (RGT) had been delayed to 2Q13 from Jan 2013. This is the second time the RGT has been delayed due to technical issues. To recap, the RM2b RGT was initially targeted to start in Aug 2012 before it was delayed to early Jan 2013 and now, further up to 2Q13. The RGT in Melaka will have a maximum throughput capacity of up to 530mmscfd or 3.8 MTPA.

New gas supply to start in 2Q13.  The additional 40MMScfd gas supply to Gas Malaysia Bhd (“GASMSIA”, OP; TP: RM2.94) from the RGT is hence expected to be delayed further till 2Q13 as well. To recap, GASMSIA had signed a New Gas Supply Agreement with Petronas in Feb 2012 to obtain natural gas supply of up to 492MMScfd effective Jan 2013 for 10+5 years from 382MMScfd currently. The additional 110MMScfd allocation will be staged-up over 2013-2015, where a 40MMScfd new supply will start in Jan 2013, 30MMScfd in Jan 2014 and 40MMScfd in Jan 2015.

Minimal impact.  In view of the “back-to-back” agreement with Petronas and the new off-takers, we believe that GASMSIA will not be penalised for the delay in gas supply to its end-users. Assuming the new Melaka operation starts on 1 Apr 2013, we expect GASMSIA’s FY13 earnings to come down by 3%. Meanwhile, our latest  channel check revealed that there could be only a single-tier price system for all the existing and future off-takers, which is on a blend of regulated (i.e. RM16.07/mmbtu) and market price. This contrasts with the earlier guidance by management that the existing off-takers pay the regulated price while new clients pay based on market pricing.

FY13 earnings cut by 3%. We are cutting our FY13 estimate by 3% to RM173.7m from RM178.3m previously with the RGT delay. We maintain our assumption of a two-tier price mechanism for now pending the official announcement of a one-tier price system, if any. In any case, GASMSIA’s bottom line will not be affected as long as the profit margin spread is regulated at c.RM2/mmbtu. At the same earnings payout of 75%, our FY13 GDPS is reduced by 3% as well to 13.9 sen, yielding 5%. However, we are keeping our FY12 and FY14 estimates unchanged. 

Still an OUTPERFORM.  We continue to like GASMSIA for its growth story with a defensive quality and generous dividend payouts. Although its FY13 GDPS is now lower by 3% due to the delay in the start of Melaka RGT, a potential 100% payout (since management guided that such scenario is possible due to a lower capex requirement in 2013) could bring gross yield to 7.1% from 5.3% currently. Hence, the company still offers a rare investment opportunity for investors who are looking for both growth and income qualities in a stock. We are maintaining our OUTPERFORM rating on GASMSIA with an unchanged target price of RM2.94/DCF share. 

Source: Kenanga