Gas Malaysia Berhad - Gas prices raised by 2.3%
Target RM3.95 (Stock Rating: ADD)
Despite the small quantum, Gas Malaysia's revision of the non-power gas tariff is positive as it implies that the government is sticking to its 6-month gas price revision plan. The new gas tariff will take effect by the beginning of November while we anticipate another revision by Apr/May 2015. We maintain our Add call on Gas Malaysia, with a revised target price of RM3.95, still based on 24x FY15 P/E, after trimming FY14-16 EPS by 0.2-0.4% p.a. given the new selling prices.
What Happened
Gas Malaysia has announced a hike in its selling prices by RM0.45/MMBtu to RM19.77/MMBtu from RM19.32/MMBtu previously. This implies a hike of 2.3%, which is low compared to the previous hike in April 2014 of 20.4%. The steepest hike is for Category C users (601-5,000MMBtu/year consumption) of 3.1% while there will be no change to the selling prices for customers under the residential categories. Furthermore, the tariff increase does not apply to liquefied natural gas (LPG). Similar to the previous hike 6 months ago, Gas Malaysia's buying price will also be revised, although this has yet to be announced. The new tariff will take effect by the beginning of November.
What We Think
We are positive on the selling price increase as this implies that the government is sticking to its 6-month gas price revision plan. However, we do note that this price increase is minimal at only 2.3% while we had previously expected a hike of RM1.50/MMBtu every 6 months. We believe the reason for the lower than expected tariff increase is due to the already high inflation expectations driven by the petrol subsidy removal and upcoming GST, thus a steeper hike in the gas prices would further increase inflationary pressures as Gas Malaysia's industrial customers would pass on the higher costs to end consumers. We think that Gas Malaysia's average blended (domestic and LNG) buying price for natural gas is likely maintained at around RM2/MMBtu implying a minor increase in its buying price of gas.
What You Should Do
Our core earnings forecasts for FY14-15 are revised downwards marginally by 0.2-0.4% after we make adjustments to Gas Malaysia's buying and selling prices. Our target price is thus reduced slightly to RM3.95, based on an unchanged 24x FY15 EPS. Despite the minimal gas price hike, we are positive that the government is keeping to its 6-month revision programme.
Source: CIMB Daybreak - 30 October 2014,
Target RM3.95 (Stock Rating: ADD)
Despite the small quantum, Gas Malaysia's revision of the non-power gas tariff is positive as it implies that the government is sticking to its 6-month gas price revision plan. The new gas tariff will take effect by the beginning of November while we anticipate another revision by Apr/May 2015. We maintain our Add call on Gas Malaysia, with a revised target price of RM3.95, still based on 24x FY15 P/E, after trimming FY14-16 EPS by 0.2-0.4% p.a. given the new selling prices.
What Happened
Gas Malaysia has announced a hike in its selling prices by RM0.45/MMBtu to RM19.77/MMBtu from RM19.32/MMBtu previously. This implies a hike of 2.3%, which is low compared to the previous hike in April 2014 of 20.4%. The steepest hike is for Category C users (601-5,000MMBtu/year consumption) of 3.1% while there will be no change to the selling prices for customers under the residential categories. Furthermore, the tariff increase does not apply to liquefied natural gas (LPG). Similar to the previous hike 6 months ago, Gas Malaysia's buying price will also be revised, although this has yet to be announced. The new tariff will take effect by the beginning of November.
What We Think
We are positive on the selling price increase as this implies that the government is sticking to its 6-month gas price revision plan. However, we do note that this price increase is minimal at only 2.3% while we had previously expected a hike of RM1.50/MMBtu every 6 months. We believe the reason for the lower than expected tariff increase is due to the already high inflation expectations driven by the petrol subsidy removal and upcoming GST, thus a steeper hike in the gas prices would further increase inflationary pressures as Gas Malaysia's industrial customers would pass on the higher costs to end consumers. We think that Gas Malaysia's average blended (domestic and LNG) buying price for natural gas is likely maintained at around RM2/MMBtu implying a minor increase in its buying price of gas.
What You Should Do
Our core earnings forecasts for FY14-15 are revised downwards marginally by 0.2-0.4% after we make adjustments to Gas Malaysia's buying and selling prices. Our target price is thus reduced slightly to RM3.95, based on an unchanged 24x FY15 EPS. Despite the minimal gas price hike, we are positive that the government is keeping to its 6-month revision programme.
Source: CIMB Daybreak - 30 October 2014,
