Gas Malaysia (GMB MK)
Margin ahead of expectations
– Our and consensus full-year projections for 1Q21 were exceeded – The volume of gas sales remained solid, increasing by 9% year over year. Lower gas tariffs, on the other hand, resulted in a drop in revenue. The 6.2 percent dividend yield is appealing.
The volume of gas sold increased by 9% year over year.
Due to the revised lower gas tariff during the quarter, GMB’s revenue fell by 28% yoy to RM1.1 billion, with no impact on margins. Gas sales volume, on the other hand, returned impressively, increasing 9% year over year, despite the MCO implementation last year.
Despite this, core net profit climbed 16 percent year over year, owing to improved spreads and shipper function margins. The unregulated sector is exhibiting signs of stability, having reported a profit for the third quarter in a row, which is rather impressive.
Despite the fact that 1Q21 earnings represented 25-26 percent of our/consensus full-year predictions, we believe the results were better than expected because margin favorably surprised. While 1Q revenue only accounted for 17% of our current full-year expectation, we expect larger gas tariff revisions in subsequent quarters to make up for the gap.
The volume of gas sold declined by a smidgeon of a percent on a year-over-year basis. The decreased gas pricing resulted in a 28 percent drop in net profit to RM56 million, while volumes fell by a negligible 1%. Lower gas costs helped to offset this, resulting in a 1.5ppt increase in margins. Because of the one-time adjustment in the preceding quarter, interest income also normalized.
Increase our EPS while keeping our Buy rating.
We boost our projections by 7% to account for stronger margins, and we boost our DDM-based 12-month target price to RM3.25 (from RM3.18), correcting for 2.5 percent terminal growth. We keep our Buy rating, which has a 20% upside potential and a 6.2 percent dividend yield in 2021E. (based on a 90 percent dividend payout assumption). In our opinion, the current PER valuation of 15x, which is trading at a -1SD level, is attractive.
a significant risk
Key downside risks include lower-than-expected gas sales volume if a strict Movement Control Order (MCO) lockdown occurs, which will negatively influence volume; negative margin surprises; and non-regulated assets reverting to losses.
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