Benefiting from higher retail margin

■ 1QFY22 core net profit was above expectations due to higher-than-expected
retail margin at its shipper division.
■ 1Q22 gas volume was weaker yoy and qoq due to loss of existing customers,
which is expected to normalise following the addition of new clients.
■ Our TP is raised to RM3.40 as we bump up our FY22-24F EPS to reflect the
higher retail margin. Reiterate Add.

Stronger 1Q earnings on higher retail margin

Gas Malaysia’s 1QFY22 core net profit came in above expectations, at 42% of our and
37% of Bloomberg consensus’ full-year estimates, due to higher-than-expected retail
margin at its shipper division. 1Q22 core net profit rose 64% yoy, largely supported by
higher revenue (in line with higher average natural gas selling prices and higher firm
capacity reservations by shippers) and higher gross profit (in line with higher retail
margin, which is calculated as a proportion of the gas cost). Qoq, 1Q22 core earnings
increased 27% on stronger gross profit contributed by shipper division, mainly driven by
more efficient gas procurement and customised margins with its existing customers.

Gas volume sold likely to normalise in remaining quarters

We gather that the 1Q22 gas volume was lower yoy and qoq, due to loss of 21 existing
customers following the gas market liberalisation since early-2022. Nonetheless, gas
volume sold should normalise in the following quarters, as Gas Malaysia had secured 15
new customers in 1Q22 and will continue to expand its customer base in future. Majority
of its legacy customers have renewed their contracts with the group, and the three
different contract tenures (3-years, 5-years, and 8-years) give good earnings visibility for
at least the next three years, in our view.

RP2 proposal submitted to EC

We gather the group has submitted its regulatory period 2 proposal (RP2, 2023-2025) to
the Energy Commission (EC) in Mar 22, and we expect the RP2 parameters to be
announced by end-2022F/early-2023F. A final DPS of 6.87 sen was declared in Mar 22,
bringing FY21 total DPS to 17.67 sen (vs. 15.05 sen in FY20), representing a dividend
payout of 91%, which is in line with our estimate. Gas Malaysia typically announces its
dividends in three tranches, and the final DPS is normally declared in Mar/Apr.

Reiterate Add

Our TP is revised up to RM3.40 following our earnings revision, still based on 16.2x
FY23F P/E (its 2-year historical mean). We are using the two-year historical mean P/E as
it reflects Gas Malaysia’s trading range during the implementation of the incentive-based
regulation (IBR) period starting 2020. The stock remains an Add, with relatively stable
earnings, decent dividends and potential environmental, social and governance (ESG)
rotation play as re-rating catalysts.