KUALA LUMPUR (Aug 12): UOB Kay Hian Research is projecting Gas Malaysia Bhd (KL:GASMSIA) to deliver a net profit of close to RM100 million in the second quarter ended June 30, 2024 (2QFY2024), amid higher natural gas growth and higher regulated profit.

In a note to investors on Monday, the research firm expects natural gas demand to recover in 2Q2024, driven by broader economic uplift, recovery in rubber glove production, as well as seasonal factors, due to a low base in 1Q2024 as a result of factory closures during the festive Chinese New Year season.

“Based on the estimates, natural gas volume may grow by 5% to 6% year-on-year (y-o-y) in 2Q2024 . This will be partly offset by lower natural gas prices of RM44 per tonne in 2Q2024, versus RM48 per tonne a year ago. Regulated profits (distribution of natural gas) are also expected to be higher y-o-y,” it said.

“2024 regulated revenue is expected to be higher by RM30 million, as a result of a 10% increase in demand capacity for 2024,” it added.

For the full year 2024, UOB Kay Hian expects natural gas prices to average RM44-RM45 per tonne, compared with RM47 per tonne in 2023.

The marginally lower natural gas prices will be offset by higher natural gas volume (with anticipated growth of between 5% and 6% y-o-y) and higher regulatory profits, it said.

“Higher distribution profits will help buffer the relatively flattish natural gas prices expected in 2024. As such, we expect a solid 2024 net profit of RM380 million (flat y-o-y),” it added.  

On the dividend front, the research house expects Gas Malaysia to maintain a similar dividend quantum as 2023 (22.8 sen per share) at the very least. This translates to an attractive dividend yield of 6% over 2024 and 2025.

Separately, the research house said Gas Malaysia is expected to enter into negotiations in 4Q2024, as the bulk of its industrial customer contracts are up for renewal. The company has 1,050 industrial customers as at December 2023.

UOB Kay Hian expects Gas Malaysia to focus on operational excellence to help create customer stickiness, especially now that contracts are up for renegotiation in 2024.

It is maintaining a “hold” call on Gas Malaysia’s stock, with a target price of RM3.50. At Monday’s noon market break, Gas Malaysia shares closed up three sen or 0.84% at RM3.60, valuing the group at RM4.61 billion. Year-to-date, the stock has risen 12%.

Gas Malaysia’s 1QFY2024 net profit rose 7.9% to RM102.63 million from RM95.1 million a year earlier, on higher volume of natural gas sold, in tandem with a higher tolling fee. However, quarterly revenue fell 23.3% to RM1.87 billion from RM2.44 billion in 1QFY2023, in line with the lower average natural gas selling price. No dividend was declared for the quarter under review.

In FY2023, Gas Malaysia posted a net profit of RM383.4 million, down by a marginal 1.6% from RM389.54 million in FY2022. Full-year revenue came in at RM8.08 billion, up 5.6% from RM7.65 billion.