Gas Malaysia’s sales volume to fall under MCO

It will be temporary as some businesses have resumed operations since mid-April as the govt allowed certain sectors to reopen for operations


GAS Malaysia Bhd will see some pressure on volume growth as a result of business closures under the Movement Control Order (MCO) which began on March 18 and extended to June 9.

However, this will be temporary as some businesses have resumed operations since mid-April 2020 as the government allowed certain sectors to reopen, MIDF Investment Bank Bhd (MIDF Research) said.

“That said, notwithstanding the current pandemic crisis experienced worldwide, we reiterate our view that earnings growth for Gas Malaysia going forward will mainly be driven by two (factors).

“(Namely) expansion of existing customers’ volume, and better margins resulting from the recently implemented Third Party Access regulation,” it wrote in a note last Friday.

Gas Malaysia’s management has also guided for its financial year ending Dec 31, 2020 (FY20), to see growth partially from the increase in volume of gas sold in line with its recently acquired customers.

Higher gas sales volume will continue to be driven primarily by the rubber, oleo-chemical, consumer products and glass manufacturing industries.

“Gas Malaysia is also in progress to build more facilities up north between Kedah and Perlis which would further increase the gas off-take from Gas Malaysia. This, we opine, will ease the impact from the current Covid-19 pandemic crisis,” the research firm said.

The Covid-19 pandemic will have some effect on gas volumes sold in the second quarter (2Q20) and potentially 3Q20 as well, it added.

Yet, it’s keeping its assumption of 4% volume growth for the company in FY20, as some of Gas Malaysia’s customers in the rubber and consumer industries are still doing well and have been operating non-stop during the MCO.

“We believe there is some increase in off-take of gas coming from companies operating in these industries as high production output was recorded to cater to the increase in glove and food demand locally and internationally,” it said.

This will cushion the impact from the loss in off-take from other companies that had to close down during the MCO.

Accordingly, MIDF Research is maintaining its ‘Buy’ call on Gas Malaysia with an unchanged target price (TP) of RM3.11.

Affin Hwang Investment Bank Bhd also said the group would likely see a wider decline in gas sales volume in 2Q20 as businesses are impacted by the extended MCO.

It kept a ‘Hold’ call on Gas Malaysia, but raised its dividend-discount model-based 12-month TP to RM2.62 from RM2.55 earlier, as the firm rolls forward its valuation horizon.

“We continue to view Gas Malaysia as a defensive yield play with a 4% projected yield, based on our 90% payout assumption.

“Key upside risks include higher than expected sales volume and better margins. Key downside risks would be an economic recession affecting demand for natural gas and start-up losses from the group’s joint ventures,” Affin Hwang said.

Gas Malaysia’s net profit rose 16.3% to RM47.86 million in the 1Q ended March 31, 2020, from RM41.16 million recorded in the same quarter a year ago.

Revenue, however, eased 6.4% to RM1.6 billion from RM1.71 billion previously, due to lower average tariff recorded for the quarter, despite the higher volume of natural gas sold during the quarter.

Shares of the company closed 1.44% or four sen higher at RM2.81 last Friday, valuing the firm at RM3.61 billion.