Better prospects for Gas Malaysia on elevated natural gas prices
PETALING JAYA: UOB Kay Hian (UOBKH) Research is positive on Gas Malaysia Bhd (GMB) despite maintaining its “hold” call on the company at a lower target price (TP) of RM3.07 a share.

The research firm expects the gas reticulator’s fourth quarter of 2023 and first half of this year financial performance to benefit from elevated natural gas (NG) prices, although it will be partly offset by lower NG volumes.

“This will bring its full-year 2023 net profit of RM350mil to RM360mil. This is an 8% dip from last year’s exceptional net profit of RM390mil on the back of elevated NG prices.

“We estimate NG prices rose 17% year-on-year (y-o-y) in 2023 and will likely stay elevated in 2024, given the conflict in Gaza,” the research house noted in a report on GMB.

For 2024, UOBKH Research said a key risk for the gas supplier would include the potential loss of retail market share.

“We gathered the bulk of 1,042 industrial customer contracts are up for renewal in 2024, suggesting downside risk to NG volume to be sold by its retail arm, Gas Malaysia Energy and Services Sdn Bhd. We see heightened risk of potentially losing customers to bigger competitors like Petroliam Nasional Bhd in this space,” the research house noted.

However, it expects the group to match 2022’s strong dividend of 22.8 sen per share that was paid out.

“As such, we expect GMB to declare 17.8 sen per share second interim and final dividend for 2023. This suggests 2023 dividend payout of 85% and an attractive dividend yield of 7%. The 4Q23 dividend payout of 17.8 sen per share translates to a 5% dividend yield,” it said.

Another positive factor for the gas supplier is its operational excellence, whereby it recorded an impressive SAIDI (System Average Interruption Duration Index) of only 0.0012 minutes per customer as at September 2023.

“In addition, GMB’s response time to any outage was 24.25 minutes versus a year ago at 26.34 minutes. The improvement in operational efficiency will help to create customer stickiness especially when the contracts are up for renegotiation in 2024,” it said

The research firm intends to pencil in a 6% y-o-y decline in NG volume for this year.

“This takes into account potential loss of market share and heightened competition in the gas retail space. We think the drop in NG volume will taper off in 2025 as most contracts are between 24 and 36 months.”
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UOB Kay Hian (UOBKH) Research is positive on Gas Malaysia Bhd (GMB) despite maintaining its “hold” call on the company at a lower target price (TP) of RM3.07 a share.