PETALING JAYA: Gas Malaysia Bhd is set to face speed bumps in the near term, no thanks to the easing of global gas prices and softening demand from glove makers.
Kenanga Research said it was turning “neutral” on the gas distribution company following its strong share price performance as of late.
On the other hand, its key re-rating catalyst, namely, soaring gas prices globally, has come off its peak significantly.
This means that the expanding margins of its non-regulated business have run their course, it added.
“We see plenty of signs pointing towards the peaking of its share price, including signs of trend reversals in gas prices, the tapering of its retail margins and softening demand in the second half of the year.
“The company charges its customers in accordance with the Malaysia reference price (MRP) and beta (operating costs plus profit margin).
“While the latest MRP for March to May 2022 period was 14% higher at RM40.174 per million British thermal units (mmbtu) against RM35.254 per mmbtu in December 2021 to February 2022, we expect the next MRP to come in lower.
“This is from taking our cue from the liquefied natural gas (LNG) Japan/South Korea Marker (Platts) Swap futures, where prices have already come off about 40% from their all-time-high of US$69.955 (RM319) per mmbtu on Aug 25, 2022 to US$42.16 (RM192) per mmbtu on Sept 16, 2022,” Kenanga Research said.
As the company no longer shares gas volume data since the first quarter of the financial year 2022 for competitive reasons under the more liberalised market environment, it has guided for a slowdown in volume.,
This, the research house believes, could be attributable to lower production by glove makers that typically contribute to a third of its business volume.
Kenanga Research has downgraded the stock to a “market perform” from an “outperform”.
However, it said its long-term earnings remained defensive, backed by its regulated business which will anchor its dividend yield of more than 6%.
Gas Malaysia, which posted a 72.2% jump in net profit to RM107.3mil in the second quarter ended June 30, said last month that it will continue to take prudent measures to remain competitive.
In a Bursa Malaysia filing on its second-quarter earnings performance, the company said revenue during the period under review rose 29.2% to RM1.77bil from RM1.36bil a year ago.
Its earnings per share (EPS) rose to 8.36 sen versus 4.86 sen a year earlier.
It has declared a first interim dividend of 5.9 sen per share, amounting to RM75.76mil.
In the first six months to June 30, it posted a net profit of RM198.66mil, or an EPS of 15.47 sen.
This was up 68.4% from RM117.9mil, or a 9.19-sen EPS, previously.
Revenue rose 40.9% to RM3.56bil against RM2.53bil before.