Date: October 16, 2024
Broker: UOB Kay Hian
Company Overview
Gas Malaysia Berhad (GMB) is a key supplier of natural gas to industries in Peninsular Malaysia. It commands an 80% share of the natural gas (NG) retail market. The company is involved in generating electricity through gas-powered combined heat and power (CHP) systems, which are highly efficient and eco-friendly. GMB also focuses on operational excellence, boasting impressive metrics in customer service and system reliability.
Stock Data
- Bloomberg Ticker: GMB MK
- Market Cap: RM4,853.3 million (US$1,125.8 million)
- Shares Issued: 1,284.0 million
- Sector: Utilities
- 3-Month Avg Daily Turnover: US$0.3 million
- 52-Week High/Low: RM3.69/RM3.00
Major Shareholders
- Anglo Oriental Annuities: 30.9%
- Tokyo Gas-Mitsui: 18.5%
- Petronas Gas: 14.8%
Financial Highlights
- Share Price: RM3.78
- Target Price: RM4.30 (Upgraded from RM3.50)
- Upside: 13.8%
- Dividend Yield: 6.4% for 2024, 6.7% for 2025
- 2024 Net Profit Forecast: RM407 million (+11% YoY)
Earnings Growth
GMB is projected to achieve a three-year earnings compound annual growth rate (CAGR) of 7% from 2024 to 2026. This growth is attributed to increased natural gas volume and positive operating leverage. For 2024, net profit is expected to grow by 11% YoY, reaching RM407 million. The company’s margins are projected to expand due to higher NG volume and improved operating leverage.
Dividend Policy
The company’s dividend payout remains attractive, underpinned by strong free cash flow. GMB is expected to deliver generous dividend yields of 6.4% in 2024 and 6.7% in 2025. With a minimum dividend payout ratio of 75%, shareholders are likely to benefit from sustained payouts.
Operating Performance and Outlook
GMB’s growth is driven by higher demand for natural gas, especially from the glove, glass, and food and beverage (F&B) sectors. Natural gas volumes are expected to grow by 5-6% year-on-year in 2024. The retail arm, Gas Malaysia Energy Services (GMES), has also gained momentum, with some industrial customers returning to GMB after exploring alternatives.
GMB’s regulated revenue is expected to increase by RM30 million in 2024 due to a 10% rise in government-approved NG demand capacity. While natural gas prices are anticipated to be slightly lower, averaging RM44-45 per metric ton (compared to RM47 in 2023), this is expected to be offset by higher NG volumes.
ESG Initiatives
Environmental: Natural gas is a cleaner fossil fuel, emitting 50% less carbon dioxide compared to coal. GMB’s CHP systems are also more efficient, using 32% less fuel and reducing carbon emissions by 50% compared to coal.
Social: GMB has contributed approximately RM467,785 to various social initiatives, including a back-to-school program, flood assistance, and partnerships with organizations like the Football Association of Selangor and the Gibbons Conservation Society.
Governance: GMB has implemented strong governance policies, including an anti-bribery and anti-corruption policy, promoting transparency and ethical practices.
Operational Efficiency
GMB has made notable improvements in operational efficiency. Its System Average Interruption Duration Index (SAIDI) for 1H24 was 0.002 minutes per customer, significantly improving from 0.0786 minutes in 2022. The company’s response time to outages was also reduced to 27.85 minutes, enhancing customer satisfaction and market share retention.
Risks
One key risk for GMB is the potential loss of retail market share as customer contracts come up for renewal. However, the company has successfully renewed at least half of its industrial contracts that were due for renegotiation in early 2025, indicating a stable customer base moving forward.
Valuation
The target price for Gas Malaysia has been raised to RM4.30, reflecting a discount rate of 7.8% and a growth rate of 2%. At this target price, the stock would trade at 13x its projected 2025 net profit, making it an attractive investment amid market volatility.
All data and forecasts are based on information available as of October 16, 2024, provided by UOB Kay Hian.
