A decent shelter
No deterioration in fundamentals
We estimate GMB’s average tariffs likely climbed further in 1Q22. With gas
prices now fully liberalised, higher spreads is a possibility in our view.
Maintain HOLD with an unchanged DCF-based MYR2.90 TP. The gas utilities
have thus far proven to be good shelters amid the market rout. GMB is our
relative preference among the gas utilities.
Gas tariffs likely climbed further
Gas tariffs are now completely liberalised beginning 2022, meaning GMB
no longer publishes its tariff at the start of the quarter. GMB announced
last week that its distribution tariff for 2022 has been set at MYR
1.715/GJ/day. We estimate this equates to c.MYR2.05/mmBTU,
unchanged QoQ. Meanwhile, PETRONAS’ reference gas price is up 13% QoQ
in 1Q22. Assuming retail margin remains at 2021 levels, we estimate GMB’s
average selling price could have increased by c.12% QoQ to c.MYR40-
41/mmBTU.
Watching out for the new normal
We expect PETRONAS’ reference gas price to rise further in tandem with
crude oil prices. Apart from directly impacting end tariff, higher gas cost
also raises retail profit (derived from an undisclosed percentage of gas
cost) and is thus positive for GMB all else equal. With gas prices now fully
liberalised, GMB has discretion on pricing. 1Q22 results should provide a
good barometer on whether this translates to improved margins / spreads.
A non-crowded trade
We believe the lack of material share price movement in recent years is
in part due to the opaque regulatory disclosures (although terms have not
proven to be detrimental). Our earnings forecasts and MYR2.90 TP (DCFbased assuming 8.1% WACC and 2% long-term growth) are unchanged.
Every 5sen/mmBTU change to our spread assumption (MYR2.45/mmBTU)
would move our FY22E net profit by 3.4%.