Gas Malaysia currently operates
about 1,800km of gas pipelines in Peninsular Malaysia and is the only
company licensed under the Gas Supply Act, 1993 by the Energy Commission to
supply and sell reticulated natural gas in Peninsular Malaysia for a period of
30 years until September 1, 2028, strengthening its market position in the
supply of natural gas. It also sells liquefied petroleum gas (LPG) under a
second licence which expires on December 15, 2020. The company was listed on
the main board of Bursa Malaysia in June 2012 and its major shareholders are
the MMC Corporation Berhad-Shapadu Corporation Sdn Bhd consortium (40.7%), the
Tokyo Gas Co. Ltd-Mitsui & Co Ltd consortium (18.5%) and PETRONAS Gas Bhd
(14.8%), while Petroliam Nasional Berhad (PETRONAS) holds one special rights
redeemable preference share.
Gas Malaysia operates in a
highly regulated industry with significant government involvement in the
pricing and supply of gas. This gives the company limited flexibility in
managing its growth potential and financial performance. The signing of a new
gas supply agreement with PETRONAS in February 2012 saw higher supply of gas
from 382 million standard cubic feet per day (mmscfd) to 492 mmscfd on a
step-up basis. This bodes well for Gas Malaysia amid continued demand for
natural gas by the industrial sector. In addition, the company has allocated
about RM140 million for expansion of its pipelines to increase market
penetration.
The last price revision in June
2011 increased the buying price of natural gas by 27% to RM14.05/million
British thermal units (mmbtu). However, the relatively lower incremental
average selling price of natural gas of 7% to RM16.07/mmbtu resulted in Gas
Malaysia's profit spread declining to RM2.02/mmbtu from RM3.95/mmbtu. Based on
the published pricing structure by the Ministry of Energy, Green Technology and
Water, Gas Malaysia's profit spread will be fixed between RM2.00/mmbtu and
RM2.25/mmbtu going forward. Notwithstanding the published pricing structure,
the government has delayed the selling price revisions since December 2011,
which continues to pressure Gas Malaysia's profit spread. In addition, MARC
notes that the additional gas supply under the new gas supply agreement has a
second tier pricing which is based on market prices and the proportion of the
market-priced gas supply will increase gradually as the government reduces the
gas subsidies.
For 9M2012, revenue increased by
7.1% y-o-y to RM1.6 billion (9M2011: RM1.5 billion) due to higher sales volume
for natural gas. On the other hand, pre-tax profit declined by 30.3% y-o-y to
RM154.5 million (9M2011: RM221.8 million) as margins were compressed by the
narrow spread between the buying and selling price of natural gas; the operating
profit margin was lower at 9.4% (2011: 14.3%). Operating cash flow also
declined to RM168.1 million (9M2011: RM229.1 million) attributable to lower
pre-tax profit. Free cash flow remains negative at RM22.8 million (9M2011:
-RM184.5 million) mainly due to payment of dividends; the company proposes a
dividend payout ratio of 100% for 2012. Going forward, Gas Malaysia intends to
adopt a dividend payout ratio of 75% or more, which MARC views positively in
the context of internal capital generation. Gas Malaysia has consistently
maintained its debt-free position over the past few years. There are no
expectations of major capital expenditures (capex) in the near term and capital
commitments stood at RM139.3 million as at September 30, 2012, mainly for
expansion of pipelines.
The stable outlook reflects
MARC's expectations that Gas Malaysia's overall credit metrics will remain
supportive of its ratings over the next 12 to 18 months, underpinned by its
defensible competitive position, satisfactory earnings generation and no major
capex commitments.
Contacts: Se Tho Mun Yi,
+603-2082 2263 / munyi@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.
January 21, 2013
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