Distribution, good practices give Gas Malaysia the advantage

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KUALA LUMPUR: Amid increasing environmental, social and governance (ESG) pressure on the oil and gas industry, Gas Malaysia Bhd will benefit from its best practices and its strong position in gas distribution.

With the growing demand for cleaner energy sources, analysts have noted that gas is the cleanest of the fossil fuels and is therefore deemed more acceptable to the environment.

Given the limited development potential of renewables and the current structure of power purchase agreements, Maybank IB Research said gas will continue to feature prominently in Malaysia for at least the next decade.

“The risk of stranded assets is therefore low. Given its near monopoly position in gas distribution, we don’t expect Gas Malaysia to deviate from its gas-centric business in the foreseeable future, ”the research house said in a report yesterday.

As catalysts for fossil fuels, downstream energy companies in particular face some degree of environmental oversight. But given that Gas Malaysia operates only in the gas sector, this would support the company as part of the energy transition of the following years.

Maybank also pointed out that despite being a company backed by a tycoon – by which MMC Corp Bhd is the largest shareholder of Gas Malaysia with a 31% stake – there have been no questionable related party transactions since re-listing.

Gas Malaysia obtains all gas from Petroliam Nasional Bhd (Petronas) and gas prices are regulated by the Energy Commission.

The group’s results remained stable. It posted higher net profit of RM 55.63 million for the first quarter ended March 31, 2021 compared to RM 47.86 million a year ago, despite declining revenue to RM 1.15 from RM 1.61 previously.

In the latest developments, the company also announced the appointment of the former Chairman and CEO of Petronas Group, Tan Sri Wan Zulkiflee Wan Ariffin, as Chairman of Gas Malaysia.

Maybank remains in favor of the company given its positive ESG practices and good dividend payout.

“Gas Malaysia is proactive in managing capital, having historically maintained a payout of over 90%, above its dividend policy of a minimum payout of 75%,” he said.

However, the brokerage downgraded its rating on Gas Malaysia to “hold” versus “buy” previously, noting that ongoing movement restrictions could weigh on its potential profits upward.

“As the order of movement control extends, the likelihood of positive earnings surprises decreases, in our view. We therefore lower our target price (based on discounted cash flow assuming a weighted average cost of capital of 7.6% and long-term growth of 2%) to RM2.80 from RM3.00 previously whereas we are reviewing our investment assumptions, ”he said.


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