KUCHING: Gas Malaysia Bhd (Gas Malaysia) is pegged to see good earnings visibility up to 2015 with the securing of additional gas volumes of 40, 30 and 40 million standard cubic feet per day (mmscfd) for financial years 2013 (FY13) to FY15F, respectively.
HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) in a research note on the group expected this volume growth to boost Gas Malaysia’s FY13 to FY15F net earnings by eight to nine per cent per annum.
“Gas Malaysia is an attractive mid cap play that offers resilient earnings with four to five per cent sustainable yield support by its high free cash flow and strong balance sheet,” the research group outlined.
“Its outlook is promising due to strong gas demand growth and lack of competitive fuel.
“Looking ahead, Malaysia’s natural gas demand growth will be led by the power and industrial sectors, which see the advantages that natural gas has above other fuel resources.”
HwangDBS Research opined that subsidised gas cost in Malaysia to small industrial users (usage of up to 5mmscfd) at RM16.07 per mmbtu was way below the comparable cost of diesel or oil.
In addition, the firm said these users were unlikely to incur additional capital expenditure (capesx) to convert the fuel to other alternatives, as gas cost in Malaysia would likely remain heavily subsidised, even after the general election.
It was also noted that the delay in commencement of Petronas’ Melaka regasification plant would not reduce the new gas supply volume as the new supply could come from other domestic sources.
Meanwhile, Gas Malaysia was also in the process of negotiating for additional supply to support future growth.
“Gas Malaysia entered into a memorandum of understanding (MoU) with IEV Holdings Ltd (IEV) in October 2012, a company listed under Catalist of Singapore Exchange, to conduct feasibility studies on prospects of cooperating and undertaking projects for the processing, transporting and marketing of liquefied natural gas (LNG) to industrial consumers in Peninsular Malaysia who are not connected to Gas Malaysia’s natural gas pipeline system.” To note, ievis a leading provider of subsea products and services in the Asia Pacific region.
It produces compressed natural gas (cng) from natural gas sources and then transports and delivers it to customers in the industrial sector where gas pipelines are not available.
If the MoU materialises, HwangdbsResearch said it could result in a larger gas supply for gas Malaysia through imports from lngterminals in Singapore.
“Gas Malaysia would not need to invest in new pipelines under this venture, but may incur additional Capex on new trucks and gas storage facilities,” it highlighted.
“We estimate that every one per cent increase in gas supply would enhance fy14f net earnings by one per cent.”
As such, the research firm pegged a target price of RM3.25 per share for Gas Malaysia, liking the group for its defensive and scalable earnings, high earnings visibility under the regulated pricing mechanism, and strong growth prospects from rising gas demand in Malaysia.