GASMSIA (5209) - Gas Malaysia Berhad - Out of (cheap) gas
Target RM3.03 (Stock Rating: HOLD)
Gas Malaysia's 4Q14 core net profit of RM23.3m took the full-year figure to RM167m, 13% short of our and consensus forecasts. The main culprit was a subpar gross margin which fell ~6% pts due to the use of LNG. We slash our FY15-16 earnings forecasts by 26-31% as we factor in higher feedstock costs. We also reduce our target price to RM3.03 as we now value it at 22x FY16 P/E instead of 24x to factor in higher discount to PetGas’s valuation to 20% (from 15% previously) as Gas Malaysia's margins are not as secure. We downgrade our call on the stock from add to Hold.
A bad 4Q14
Although a higher volume of gas sold fuelled a 29.2% rise in 4Q14 revenues, gross profit slumped 43% yoy. The weaker gross profit was mainly due to higher feedstock costs as Gas Malaysia used LNG to supply its customers. Around 70-80% of Gas Malaysia's gas volumes are subsidised and priced at RM15.55/MMBTu while LNG is priced at RM40-45/MMBTu. As a result of the weaker gross margins, Gas Malaysia's 4Q14 core net profit fell by 41.6% yoy and 56.6% qoq.
4 sen dividend in 4Q
In tandem with the weak earnings, Gas Malaysia's dividend payout ratio was reduced from 100% in FY13 to 69% in FY14, equivalent to a 9 sen total DPS (5 sen and 4 sen interim dividends). We are disappointed with the lower payout ratio though we recognise that the payout ratio has been lowered to ensure that there is sufficient cash to acquire feedstock given the weak earnings and uncertain gas cost outlook in FY15.
Downgrade to Hold
We cut our FY15-16 earnings forecasts by 26-31%. Our previous optimism over the company's outlook was unjustified as we did not consider the fact that Gas Malaysia's sales volumes would grow beyond the threshold for gas subsidy, resulting in declining margins. Our target price is lowered to RM3.03, based on 22x FY16 P/E as we widen the discount to PetGas’s valuation given the latter's more secure earnings underpinned by its fixed agreements.
Source: CIMB Daybreak - 16 February 2015
Target RM3.03 (Stock Rating: HOLD)
Gas Malaysia's 4Q14 core net profit of RM23.3m took the full-year figure to RM167m, 13% short of our and consensus forecasts. The main culprit was a subpar gross margin which fell ~6% pts due to the use of LNG. We slash our FY15-16 earnings forecasts by 26-31% as we factor in higher feedstock costs. We also reduce our target price to RM3.03 as we now value it at 22x FY16 P/E instead of 24x to factor in higher discount to PetGas’s valuation to 20% (from 15% previously) as Gas Malaysia's margins are not as secure. We downgrade our call on the stock from add to Hold.
A bad 4Q14
Although a higher volume of gas sold fuelled a 29.2% rise in 4Q14 revenues, gross profit slumped 43% yoy. The weaker gross profit was mainly due to higher feedstock costs as Gas Malaysia used LNG to supply its customers. Around 70-80% of Gas Malaysia's gas volumes are subsidised and priced at RM15.55/MMBTu while LNG is priced at RM40-45/MMBTu. As a result of the weaker gross margins, Gas Malaysia's 4Q14 core net profit fell by 41.6% yoy and 56.6% qoq.
4 sen dividend in 4Q
In tandem with the weak earnings, Gas Malaysia's dividend payout ratio was reduced from 100% in FY13 to 69% in FY14, equivalent to a 9 sen total DPS (5 sen and 4 sen interim dividends). We are disappointed with the lower payout ratio though we recognise that the payout ratio has been lowered to ensure that there is sufficient cash to acquire feedstock given the weak earnings and uncertain gas cost outlook in FY15.
Downgrade to Hold
We cut our FY15-16 earnings forecasts by 26-31%. Our previous optimism over the company's outlook was unjustified as we did not consider the fact that Gas Malaysia's sales volumes would grow beyond the threshold for gas subsidy, resulting in declining margins. Our target price is lowered to RM3.03, based on 22x FY16 P/E as we widen the discount to PetGas’s valuation given the latter's more secure earnings underpinned by its fixed agreements.
Source: CIMB Daybreak - 16 February 2015
