On Tuesday, Gas Malaysia Bhd (KL:GASM) shares received an upgrade from Macquarie, moving from a Neutral to an Outperform rating. The upgrade comes with a significant increase in the price target, now set at MYR4.40, up from the previous MYR3.25. The revision reflects the anticipation of an earnings boost driven by an expected rise in gas volume for the financial years 2025 and 2026.
The analyst at Macquarie predicts an 11% and 6% surge in gas volume for FY25E and FY26E, respectively. This growth is primarily attributed to the rising demand from the rubber glove sector, which is likely to benefit from the United States imposing higher tariffs on Chinese glove imports.
The firm's performance in the first nine months of 2024 has already surpassed estimates due to robust volume demand, which helped offset the impact of weaker gas prices.
The revised price target of MYR4.40, marking a 35% increase from the previous target, is backed by the belief that the stronger gas volume will lead to earnings growth, countering any potential weakness in the Mandatory Standard on Access Pricing (MRP). Furthermore, Gas Malaysia's attractive dividend yield of 6.5% is seen as a supportive factor for the share price.
The analyst also highlighted the company's performance in the first nine months of 2024, where earnings exceeded expectations. This positive outcome was a result of the strong demand for gas volumes, which provided a balance against the backdrop of declining gas prices.
In conclusion, the combination of anticipated volume growth, particularly from the rubber glove sector, and the substantial dividend yield, are key drivers behind the upgrade of Gas Malaysia's stock to Outperform and the elevated price target.
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