Kenanga Research said Gas Malaysia’s earnings visibility remained strong, as the company had locked in most of its customers in three-year contracts.
PETALING JAYA: Gas Malaysia Bhd
remains an attractive dividend play, despite expectations of lower earnings.
Analysts noted the gas merchant is expected to continue to deliver a dividend yield of more than 6% for the financial year ending Dec 31, 2023 (FY23).
Citing an attractive dividend yield, Kenanga Research maintains its “market perform” call on Gas Malaysia, while MIDF Research recommends “buy” on the counter.
Kenanga Research, however, lowered its target price for Gas Malaysia to RM3.27 from RM3.54 after discounting back the company’s cash flows from FY24 as compared with FY23 previously.
MIDF Research, on the other hand, maintained its target price for the counter at RM4.
“We are also positive on its dividend play, as evidenced by Gas Malaysia’s first interim dividend of 5.72 sen per share,” MIDF Research said of the proposed payout for the first half (1H) of FY23.
“The risk of a lower average natural gas selling price following the low trend of natural gas prices in 2023 is mitigated by the upcoming second regulatory period (RP2) project, whereby the group has committed to capital expenditure of approximately RM800mil,” the brokerage added.
According to Kenanga Research, Gas Malaysia’s earnings visibility remained strong, as the company had locked in most of its customers in three-year contracts.
“We like Gas Malaysia for its strong market position as a key natural gas retailer in Malaysia, strong earnings visibility underpinned by its ability to retain customers, typically via three-year contracts, and strong free cash flow generation, anchoring a dividend yield of more than 6%,” the brokerage explained.
“However, there is a lack of catalyst given that its earnings already peaked in FY22 with gas prices easing,” it added.
Gas Malaysia posted a net profit of RM192.91mil in 1H23, down from RM198.66mil in 1H22 on lower volume, while revenue was up RM4.46bil from RM3.56bil on a higher average natural gas selling price.
The results were largely in line with market expectations, analysts said.
Kenanga Research said Gas Malaysia would likely register softer quarters ahead as gas prices normalise.
MIDF Research noted that Gas Malaysia’s results showed that for the first half of this year, the volume contribution for natural gas offtake was the highest from the rubber glove industrials (21%), followed by consumer products (19%), oleo-chemicals (15%), pulp and paper (9%) and metal (8%).
“Consumer products, oleo-chemicals and metals had seen an increase in volume offtake of 1% to 3% from 1H22, signalling a higher demand for gas to run the equipment in the consumer and materials industries, in line with the expected domestic economic growth of 4% to 5% in 2023,” MIDF Research said.
“We are also positive on its dividend play, as evidenced by Gas Malaysia’s first interim dividend of 5.72 sen per share.”Kenanga Research
