Upgrade to BUY

1Q22 results were significantly ahead of expectations, with higher retail
margin from price liberalisation more than offsetting slight volume loss.
We expect current spreads to sustain, with share price likely to re-rate
as earnings expectations are raised. Upgrade to BUY (from HOLD) with a
higher MYR3.30 DCF-based TP (from MYR2.90).

A strong beat

GMB’s 1Q22 net profit of MYR91m (+64% YoY, +32% QoQ) was 38%/37% of
our/consensus full-year forecasts respectively. The strong earnings
growth was mainly due to improved spreads from higher retail margin, as
gas tariffs are now completely liberalised beginning 2022. No dividend
was declared in the quarter, consistent with past practices.

Higher-than-expected spreads

With gas prices now fully liberalised, GMB has discretion on pricing. We
had flagged previously that this could potentially translate to improved
retail margins, and so it proved. 1Q22 gas volume of 51.1 tn BTU was
down 5% QoQ and 6% YoY due to the delay and non-renewal of some
customer contracts (following the tariff regime change). Spreads
however were up significantly to c.MYR3.20/mmBTU, from c.MYR2.45/
mmBTU in FY21 on the back of higher retail margin and elevated gas
prices.

Raising earnings

With customers having signed on to multi-year contracts and gas prices
still elevated, we believe 1Q22 spreads are potentially sustainable. We
raise our FY22/23/24 net profit by 38%/32%/25% respectively as we raise
our spread assumptions. Our TP (DCF-based assuming 8.1% WACC and 2%
long-term growth) is consequently raised to MYR3.30 (from MYR2.90).
Upgrade to BUY (from HOLD). Every 5sen/mmBTU change to our FY22
spread assumption (MYR3.20/mmBTU) would move our FY22E net profit
by 2.4%.