Gas Malaysia Has A Record Year 2022

GMB's net profit in 4Q22 was MYR95m, which was in line with expectations, and showed a 37% YoY increase, but a slight QoQ decrease of 0.5%. This brings the company's net profit for FY22 to MYR390m, a new high.

Although the improved spread from higher retail profit was offset by higher taxes, the absence of Cukai Makmur in FY23 is expected to lead to further net profit growth.

The spreads are expected to stay elevated due to high gas prices, and there is no visible deterioration in regulatory terms. The estimated c.8-10% YoY decline in retail volume in FY22 is mainly due to customer churn during contract renewal, with a step-down occurring in 1Q22.

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The 4Q22 spread is estimated to be c.MYR4.00/mmBTU, which is higher QoQ due to higher gas prices. GMB disclosed that its distribution business was in an over-recovery position as at the end of 4Q22.

The company declared an interim DPS of 8.24sen and is likely to declare a final DPS upon the release of audited accounts, with an expected 80% payout ratio for FY22. The forecasts for FY23/24 net profit have been raised by 5%/6%, respectively, and FY25 forecasts have been introduced.

The TP, based on a DCF of 8.1% WACC and 2% long-term growth, remains unchanged at MYR3.80. Although details on RP2 terms have not been disclosed, it is believed that GMB would not be worse off.

Earnings are expected to increase sequentially in 1H23, with gas prices still remaining elevated. The overall recommendation is to reiterate a BUY on GMB.