KUALA LUMPUR (Aug 5): Gas Malaysia Bhd (KL:GASMSIA) is expected to post another “strong set” of quarterly results in the end-June quarter, on the back of higher gas selling prices, said Kenanga Investment Bank Bhd (Kenanga IB).

The natural gas distribution company will probably report a net profit of between RM100 million and RM105 million for the second quarter (2QFY2024), Kenanga said in a results preview note. That compares to RM102.3 million in 1QFY2024, and RM97.6 million in 2QFY2023.

Historically, volume will ease 2%-3% quarter-on-quarter in the April-June quarter, but sales will likely hold up this time around “on a general pick-up in business activities, especially the glove sector,” the research house said.

Gas sales to the glove sector always made up more than 30% of Gas Malaysia’s total sales in the pre-Covid period, and hit a record high of 38% in FY2020. However, the sector only accounted for 20% of Gas Malaysia’s sales volume in 3QFY2023.

The sharp decline was also due to loss of one of its glovemaker accounts to its competitor after the gas market liberalisation in 2022, and the loss of market share by local glovemakers to Chinese producers, which aggressively expanded their capacity during the pandemic era. 

Shares of Gas Malaysia have risen 34% year-to-date and analysts are questioning further gains in the stock price. A majority of seven out of nine research houses covering the stock have a “hold” call on it, including Kenanga IB, and only two rate Gas Malaysia as a “buy”.

The consensus 12-month target price is RM3.64, according to Bloomberg, a potential return of 4% from its last price of RM3.50.

Meanwhile, Gas Malaysia’s 2QFY2024 gas selling price and retail margin would have improved sequentially, the research house said.

The selling price is pegged to the Malaysia Reference Price (MRP), plus a factor called beta, while the company earns a retail margin calculated based on a percentage to the gas selling price.

Kenanga IB estimates the MRP to have risen 6% quarter-on-quarter to RM44.12 million British thermal units in 2QFY2024, tracking higher Brent crude oil prices.

All in all, Kenanga IB expects Gas Malaysia to achieve a net profit of RM365 million for the full FY2024, near the Bloomberg consensus expectations of RM370.33 million.