Yet another hike

Not a surprise

GMB’s 4Q21 tariff represents yet another increase (+21.3%) from 3Q21, due again to an increase of its gas cost (from PETRONAS). While higher gas cost would have a positive impact on GMB’s spread, there is possible earnings offset from the MCO-induced volume weakness in 3Q21. Maintain HOLD with an unchanged DCF-based MYR2.80 TP. On a relative basis, we marginally prefer GMB among the gas utilities following PTG’s (PTG MK, HOLD, CP: MYR16.90, TP: MYR17.20) recent share price recovery.

Tariffs now at record high

GMB announced that net tariff for 4Q21 would be raised to MYR36.42/mmBTU (+21.3% from MYR30.03/mmBTU in 3Q21), the highest on record (previous peak was MYR34.66/mmBTU in 2H19). The tariff includes a distribution tariff of MYR2.05/mmBTU (unchanged QoQ) but excludes a surcharge (the previous MYR0.62/mmBTU surcharge was discontinued). Key regulatory inputs such as purchase price, regulatory WACC and retail margin remain undisclosed.

Stemming from higher gas cost

The higher gas tariff in 4Q21 was again likely due to higher gas cost from PETRONAS, given the distribution tariff was unchanged QoQ, and the tariff surcharge was discontinued. LNG-indexed gas prices published by the regulator were last updated in Jul 2021, but should have risen further in tandem with crude oil prices. Apart from directly impacting end tariff, higher gas cost also raises retail margin (derived from an undisclosed percentage of gas cost) and is thus positive for GMB all else equal.

Maintain HOLD

Our earnings forecasts and MYR2.80 TP (DCF-based assuming 7.6% WACC and 2% long-term growth) are unchanged. Every 5sen/mmBTU change to our spread assumption (MYR2.25/mmBTU) would move our FY21 net profit forecast by 3.8%.