Soft 1Q likely for Gas Malaysia on seasonal factors

PETALING JAYA: Kenanga Research expects Gas Malaysia Bhd to post weaker earnings for the first quarter of 2025 (1Q25), which is due to be reported by this month-end, mainly due to seasonally soft volume, declining gas prices and narrower margin spreads.

The research house projected the company to post a net profit of between RM95mil and RM100mil for 1Q25, down from RM113.5mil in 4Q24 and RM102.3mil in 1Q24.

“While forward earnings are expected to be impacted by compressed margin spreads and a temporary gas curtailment in 2Q25, Gas Malaysia continues to offer a decent yield of 6% underpinned by resilient earnings,” Kenanga Research said.

The research house said the softer sales volume in 1Q was due to fewer working days and festive holidays, which was in line with historical 1Q sales volumes that eased due to seasonal factors.

Kenanga Research said expects minimal impact on Gas Malaysia’s sales volume following the supply disruption caused by the pipeline fire in Putra Heights, Selangor, last month, as the damaged pipeline is expected to be restored by July 1.

The research house said it believes Gas Malaysia’s 1Q25 results will also be dragged down by lower gas prices, in tandem with falling crude oil prices, which are expected to squeeze retail margins.

It pointed out that the Malaysia Reference Price (MRP) for natural gas has been on a downward trend since peaking in 1Q23. “A softer MRP will impact Gas Malaysia’s non-regulated retail margins, which are calculated as a fixed percentage over the gas selling price,” the research house added.

In addition, it expected Gas Malaysia to see narrower margin spreads to retain customers from the contract renewals that took effect from January.

That said, Kenanga Research said it likes Gas Malaysia for its strong market position, being a key supplier of natural gas in Malaysia with strong earnings visibility, underpinned by its ability to retain customers, typically via three-year contracts.

The research house pointed out that the company is favoured for its strong free cash flow generation, anchoring a dividend yield of 6%.

“However, we believe the positives are already reflected in the price.

“Thus, we maintain our ‘market perform’ rating,” the research house added.

It has lowered its target price to RM3.93, post-earnings revision, from RM3.95 previously.