Gas Malaysia's profitability to recover in second half
'That said, narrower margin spreads from contract renewals in January this year could weigh on profitability. Nonetheless, normalised gas volumes in 2H25 should support its attractive dividend yield,' the research house said.
It added that Gas Malaysia's 1Q25 results were in line, with core profit of RM100.1mil making up 25% and 24% of its and consensus full-year FY25 estimates, respectively.
On a year-on-year basis, the company's core profit dipped slightly by 2% from RM102.3mil in 1Q24, while revenue fell 1% from RM1.87bil.
Kenanga Research pointed out that earnings declined mainly due to a 19% drop in the Malaysia Reference Price for gas, despite a marginal 1% increase in demand.
The research maintained its target price of RM3.90 and 'market perform' call on the stock.
'We like Gas Malaysia for its strong market position, being a key natural gas retailer in Malaysia, strong earnings visibility underpinned by its ability to retain customers, typically via three-year contracts, and strong free cash flow generation anchoring a dividend yield of over 5%.
'However, we believe the positives are already reflected in the price. Thus, we maintain our 'market perform' rating,' the research house added.
Meanwhile, MIDF Research has revised Gas Malaysia earnings forecasts for this year to 2027 downwards by 8%, 3% and 1%, respectively, given its below-expectation results.
The research house added that the company is expected to be dragged down by the expected lower average selling prices of natural gas and liquefied petroleum gas in tandem with the lower crude oil prices forecast for this year as well as the damage from the pipeline fire.
The research house downgraded its call for Gas Malaysia to 'neutral' and the target price to RM4.48 from RM4.57.
'Nevertheless, we expect that this will be mitigated by higher demand for gas in tandem with higher industrial activity and increased consumer spending, as well as Gas Malaysia's recent launch of its biomethane injection station as part of its ongoing efforts to venture into renewables.
'The biomethane injection station in Kluang, Johor, is expected be operational in 2H25 and will receive biomethane from surrounding palm oil mills and offers a centralised solution for injecting biomethane into the natural gas grid.
'The facility will cater to the growing demand for renewable energy and green fuel in the midst of the energy transition,' the research house added.
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