Overview of Gas Malaysia Berhad

Gas Malaysia Berhad (GMB) is a prominent player in the utilities sector, specializing in the supply of natural gas (NG) to industries across Peninsular Malaysia. With a strong foothold in the market and an impressive portfolio of industrial clients, GMB has consistently demonstrated operational excellence and financial resilience.

4Q24 Earnings Preview: Another Promising Quarter

Gas Malaysia is expected to deliver a solid performance in its upcoming 4Q24 results, with projected net profit growth of 15% year-over-year (yoy), reaching RM100 million to RM120 million. The key drivers behind this anticipated performance include:

• 10% growth in natural gas (NG) volume.
• Enhanced operational leverage.
• Robust retail margins from its subsidiary, Gas Malaysia Energy & Services (GMES).

On a higher earnings base, the company is expected to maintain a stable net profit growth of 2% yoy in 2025. The stock offers an attractive 6% dividend yield, underpinned by strong cash flow generation. However, with the share price appreciating close to its fair value, the recommendation has been downgraded to “HOLD” with a target price of RM4.40.

Financial Highlights and Projections

2024 Earnings Peak

Gas Malaysia’s core net profit for 2024 is forecasted to peak at approximately RM420 million, with 4Q24 alone contributing RM100 million to RM120 million. This represents a quarter-on-quarter (qoq) growth of 3% and a yoy growth of 15%. The main factors driving this growth include:

• Stronger-than-expected NG volumes.
• Positive operational leverage.
• Higher regulated revenues.

This robust performance helps offset the relatively flat NG prices observed year-to-date.

Dividend Yield and Cash Flow

Gas Malaysia’s strong cash flow supports a minimum dividend payout of 75%, translating to a 6% yield for shareholders. The company is also exploring the construction of a US\$1 billion regasification plant in northern Peninsular Malaysia, in collaboration with a foreign partner, potentially operational by 2029. Despite the RM200-300 million equity requirement for this project, GMB is expected to maintain a dividend payout ratio of 75-90% over 2025-27.

Key Business Updates and Risks

Customer Contracts Renewal and Market Share

GMB has successfully renewed contracts with at least 90% of its existing customer base, which commands an 80% market share in the NG retail market in Peninsular Malaysia. Notably, some customers have returned to GMB after previously pivoting to competitors for a three-year term. This demonstrates the company’s strong customer retention strategy.

However, the market faces potential risks as new shippers are anticipated to enter the NG distribution industry by mid-2025, which could intensify competition and impact retail margins.

Operational Excellence

GMB has made significant strides in improving operational efficiency, achieving a System Average Interruption Duration Index of 0.002 minutes/customer, a notable improvement from the previous year’s 0.0786 minutes/customer. Additionally, the company’s rapid response time of 27.85 minutes to outages underscores its commitment to customer satisfaction.

Financial Metrics and Forecasts

While the company is expected to maintain healthy cash flow and steady growth, competition from additional shippers remains a key risk factor that could affect profit margins.

Environmental, Social, and Governance (ESG) Updates

Environmental Initiatives

Gas Malaysia emphasizes sustainability through its use of natural gas, one of the cleanest fossil fuels, which emits up to 50% less carbon dioxide compared to coal. The company’s joint ventures also utilize gas-powered combined heat and power systems, which are highly efficient and environmentally friendly, reducing fuel usage by 32% and annual carbon emissions by 50% compared to coal.

Social Contributions

• Contributed RM14,212.45 in a CSR programme involving the Orang Asli community in Kampung Pos Bersih, Perak.
• Partnered with YPM to support education for B40 students, contributing RM407,000 to benefit 1,100 underprivileged students.

Governance Practices

Gas Malaysia maintains high standards of transparency and has implemented robust anti-bribery and anti-corruption policies.

Valuation and Recommendation

Despite its strong financial performance and attractive dividend yield, Gas Malaysia’s share price has appreciated by 16% since the last upgrade, nearing its fair value. Consequently, UOB Kay Hian has downgraded the stock from “BUY” to “HOLD,” maintaining a DDM-based target price of RM4.40. At this target price, the stock would trade at 13x 2025F net profit, reflecting a balanced risk-reward profile.