Wednesday, June 1, 2011

IPO ... Gas Malaysia

Gas Malaysia Sdn Bhd a unit of MMC Corp Bhd will make a compelling growth story for investors upon listing and eventually, it may even rank high as a sound dividend-yielding stock.

It will be a period of growth for Gas Malaysia for the next two to three years, especially with more gas supply coming into place as the liquefied natural gas (LNG) plant in Malacca is getting ready.

Gas Malaysia was constrained by gas supply but, with the second LNG terminal expected to be ready by year-end (2011), it could provide gas to more customers.

Petroliam Nasional Bhd (Petronas) had earlier announced the possibility of building a second LNG receiving and re-gasification terminal while the LNG import terminal in Malacca is expected to be ready by end-June 2012.

In the short term, Gas Malaysia will be a growth story but, beyond that, it will be dividend play. Gas Malaysia could be a dividend stock given its stable income and protected margins.

MMC currently holds a 41.8% stake in Gas Malaysia with the remaining held by Petronas Gas Bhd (20%), Tokyo Gas-Mitsui & Co (Holdings) Sdn Bhd (25%) and the rest by Shapadu Holdings.

The group has yet to submit any application to the Securities Commission for its listing. It was currently conducting financial and technical due diligence.

MMC would need to get approval for the listing of Gas Malaysia's other shareholders, namely Petronas Gas and Tokyo Gas-Mitsui & Co. The proposed listing would only be brought to the board level of MMC for approval once it had been approved by Gas Malaysia's shareholders.

The plan (for listing) is still at an initial stage. They haven't submitted anything. But they are trying to resolve some terms. However, MMC was progressing on schedule for the listing of Gas Malaysia.

Gas Malaysia is the sole distributor and retailer of natural gas to non-power companies in the country which consume less than two mmbtu per day. It supplies its gas to 33,707 residential and 691 industrial customers.

In 2010, the total gas sold by Gas Malaysia was 117.8 British thermal units (mmbtu) throughout the peninsula. The total sales volume is projected to increase by 10% to 129.9 mmbtu in 2011.

As at February 2011, Gas Malaysia's network of gas pipeline covered a total of 1,726.6km (1,708.2km completed with 18.4km work in progress).

The stock could attract institutional investors' interest to any flotation of Gas Malaysia given its steady business, positive cashflow and protected margins.

The main risk surrounding the company would be the security of its gas supply and its margin. Although Gas Malaysia has a protected margin due to a favourable tariff-setting, its consumers have opted for lesser gas supply which may affect its margin.

Gas Malaysia is governed by the Gas Supply Act 1993 (Gas Act) and Gas Supply Regulations 1997. The Gas Act enables Gas Malaysia to pass through any increases in gas cost by Petronas to customers via increases in the gas tariffs; hence providing the former with a stability to its revenue and profitability to a certain extent.

However, Gas Malaysia continued to face ongoing challenge of securing more gas to meet the growing demand of its customers. The expiry of its gas supply at end-2011 may expose Gas Malaysia to contract renegotiation and gas supply risks.

In July 2011, Gas Malaysia signed a second supplemental gas supply agreement with Petronas for an additional supply of 82 million standard cu ft per day (mmscfd) natural gas. The additional supply will expire by 2012. In August 2009, Gas Malaysia managed to secure a long term supply of 300 mmscfd from Petronas.

The demand for gas was almost recession-proof due to a large pool of customers on the waiting list. Gas Malaysia currently has 400 new potential industrial customers.

For the full year ended Dec 31, 2010 (FY10), Gas Malaysia's net profit rose 23% to RM298mil from RM243mil in FY09. Its revenue for FY10 registered a 3% growth to RM1.8bil.


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