Company Overview
Gas Malaysia Bhd (GMB MK) is a leading natural gas supplier catering to various industries across Peninsular Malaysia. With a dominant market share of 81% in the gas retail market, the company is known for delivering high levels of service while maintaining strong operational performance. The company’s robust infrastructure and extensive customer base have ensured that it remains a key player in the utility sector, providing stable and efficient energy solutions.
Market Data and Valuation
Currently trading at RM4.18 per share, Gas Malaysia has a market capitalization of RM5,357.1 million (approximately US\$1,208.0 million). The stock has demonstrated attractive performance metrics over the past year, trading between RM3.30 and RM4.55 – with recent developments driving the price into focus. The stock is recommended with a HOLD rating based on a dividend discount model (DDM) target price of RM4.40, which offers a modest upside of 5.3% relative to current levels.
Recent Financial Performance
Gas Malaysia delivered impressive fourth-quarter (4Q24) results with a net profit surge of 26% year-on-year to reach RM113 million. This growth was primarily underpinned by an 8% year-on-year increase in natural gas (NG) volumes, enhanced NG margins, and a lower effective tax rate during the quarter. While sequentially the earnings fell by 3% due to a 3% drop in NG volume, the stability in NG pricing helped to maintain overall performance.
For the full year 2024, Gas Malaysia posted a robust net profit of RM432 million (excluding a RM9 million gas cost reversal in 1Q24), reflecting a 17% year-on-year increase. The year’s performance was supported by a slight 9% NG volume growth which helped offset an 8% drop in NG prices, in addition to positive operating leverage and enhanced regulatory earnings.
Key Financial Metrics and Projections
Gas Malaysia’s core financials reveal strong margins and consistent profitability:
- EBITDA Margin: Approximately 8.5% in 4Q24, inching up marginally on a year-on-year and quarter-on-quarter basis.
- Pre-Tax and Net Margins: Sustained at around 7.4% and 5.5% respectively in 4Q24.
- EPS (sen): Expected to grow from 28.3 in 2023 to 34.1 in 2024, with further gradual increases projected for 2025 through 2027.
- P/E Ratios: The current P/E of 11.1x for 2024 is expected to remain competitive, reflecting the company’s efficient operations and earnings stability.
- Dividend Yield: An attractive yield of 6.9% for 2024, gradually increasing over the forecast period.
- Net Debt/Cash Ratio: Improving from (26.2)% in 2023 to (20.7)% in 2024 and forecasted to further decline to (9.2)% by 2027, highlighting the company’s strong balance sheet.
- ROE: Remains robust around 30.5% in 2024 with projections to stay near 28.0% over the medium term.
Looking forward, Gas Malaysia’s revenue and profit forecasts incorporate modest NG volume growth (with a push from 9% growth in 2024 to more moderated levels of 5% year-on-year from 2025 onwards) and improved operational efficiencies. The EPS is expected to gradually improve, and the forecasted net margins remain stable, underpinning the company’s steady outlook in an evolving competitive landscape.
Balance Sheet and Cash Flow Analysis
The balance sheet reflects a steady asset base with total assets growing from RM3,674 million in 2024 to RM4,342 million by 2027. Fixed assets are supported by a growth in cash and short-term investments, maintaining a healthy liquidity position despite ongoing capex investments to support future operations. The cash flow analysis indicates positive operating cash flows, which, after accounting for dividend payments and investing outflows, have resulted in a positive net cash flow, ensuring the company’s ability to fund its strategic initiatives and further maintain its market position.
Market Impact and Competitive Landscape
Gas Malaysia continues to benefit from strong industrial demand and a secure customer base. A notable development is the successful contract renewal for at least 97% of its existing customer base, with secured NG volumes registering 3 million GJ higher than previous contractual levels. Despite this, the report highlights intensifying competition, particularly as two new shippers are set to enter the market in 2025. This heightened competition may lead to lower retail margins for Gas Malaysia in the near term due to shorter contract tenures (moving from three-year contracts to two-year agreements) and potential margin compression in its retail segment.
Valuation and Recommendation
Based on the comprehensive DDM-based valuation, Gas Malaysia is recommended with a HOLD rating at a target price of RM4.40. The current share price already factors in strong quarterly earnings and an appreciation of approximately 16% since the previous upgrade in October. Valuation multiples of around 12x 2025F net profit underscore that the stock is trading at market mean levels. Thus, while the company’s strong fundamentals support its market position, the evolving competitive landscape necessitates a cautious outlook.
Environmental, Social, and Governance (ESG) Initiatives
Gas Malaysia’s commitment to sustainability is clearly demonstrated through its ESG initiatives:
- Environmental: The company underscores the role of natural gas as one of the cleanest fossil fuels, producing up to 50% less carbon dioxide than coal. In addition, it supports greener energy production through gas-powered combined heat and power (CHP) systems offered via its joint venture entities, which consume 32% less fuel and emit 50% less carbon dioxide annually compared to coal-based plants.
- Social: Gas Malaysia has actively contributed to community welfare projects. Notable initiatives include a CSR programme in collaboration with the local community in Kampung Pos Bersih, Behrang, Perak, focusing on environmental conservation and the distribution of aid to approximately 40 underprivileged families, particularly benefiting the Orang Asli community. Additionally, a sizable contribution of RM407,000 has been made towards supporting the education of 1,100 B40 students in partnership with YPM.
- Governance: The company maintains a high level of corporate governance with strong transparency practices, robust anti-bribery, and anti-corruption policies, ensuring that stakeholder interests are safeguarded.
Deep Dive into Quarterly and Annual Performance
The detailed performance breakdown for 4Q24 shows the following highlights:
- Turnover: RM2,055.9 million in 4Q24 compared to RM1,801.5 million in 4Q23, representing a 14% year-on-year increase.
- Cost of Goods Sold (COGS): Increased in line with revenue, with minor sequential adjustments.
- EBITDA: Increased from RM146.8 million to RM175.4 million on a year-on-year basis, demonstrating improved operating leverage.
- Pre-Tax and Net Profit: The pre-tax profit reached RM151.2 million with a modest sequential swing, and the reported net profit registered at RM112.7 million, reflecting healthy core profitability.
- Margins: EBITDA margins and net margins have remained stable at around 8-9% and 5-6% respectively, confirming effective cost management.
The emphasis on positive operating leverage was further supported by revenues from regulated earnings and operational efficiencies. For 2024, Gas Malaysia reported an overall net turnover of RM8,045 million and an adjusted net profit of RM432 million, with forward estimates showing steady growth amid forecasting refinements for 2025 to 2027.
Long-Term Forecast and Growth Prospects
Forecasted figures indicate that Gas Malaysia expects its net turnover to grow gradually from RM8,045 million in 2024 to RM9,143 million by 2027. The company is also poised to improve its EBITDA and operating profit margins gradually through focused efficiency programs and capital expenditure directed towards future growth. With closing net debt improving significantly (from (26.2)% in 2023 to a forecast of (9.2)% by 2027) and consistent dividend payments that mirror its dividend yield growth (from 6.0% in 2023 to 7.4% by 2027), Gas Malaysia is set to maintain a healthy financial position while navigating potential market challenges.
Conclusion
Gas Malaysia Bhd continues to operate as a stalwart in the natural gas supply arena, demonstrating strong quarterly performance, solid fundamentals, and an unwavering commitment to ESG principles. Despite facing a more competitive landscape with potential pressure on its retail margins, its stable 4Q24 results, judicious contract renewals, and robust balance sheet underpin a balanced outlook. The HOLD recommendation with a target price of RM4.40 reflects a market-consistent valuation, ensuring that the stock remains a dependable pick for investors seeking exposure in the utility sector while staying vigilant of evolving market dynamics.
