Gas Malaysia Sdn Bhd - 2010

MARC has affirmed its ratings on Gas Malaysia Sdn Bhd’s (Gas Malaysia) RM200 million Commercial Papers/Medium Term Notes (CP/MTN) Programme and RM500 million Medium Term Notes (MTN) Programme at MARC-1ID /AAAID and AAAID respectively with a stable outlook. The ratings are underpinned by Gas Malaysia’s dominant market position as the sole piped natural gas distributor in Peninsular Malaysia, strong demand for piped natural gas and its healthy financial profile. The favourable tariff-setting regime which mitigates the impact of volatile gas prices on Gas Malaysia is a key credit consideration.

Gas Malaysia is owned by MMC Corporation Berhad-Shapadu Corporation Sdn Bhd (55%), Tokyo Gas-Mitsui Consortium (25%) and Petronas Gas Berhad (20%). The national oil company Petroliam Nasional Berhad (Petronas) holds one special share in Gas Malaysia. The company’s gas supply agreement with Petronas expiring in 2012 mitigates supply risk concerns while the regulated natural gas tariff-setting regime allows the company to pass through fluctuations in natural gas cost to its customers. MARC expects the favourable operating environment to continue, which should allow Gas Malaysia to operate with a low degree of industry risk and preserve its favourable financial profile. 

Gas Malaysia’s revenue contracted by 6.7% to RM1.75 billion in FY2009, driven by lower gas consumption on the back of the slowdown in the economy and the downward adjustment of natural gas tariffs in March 2009. Pre-tax profits correspondingly declined by 8.6% to RM325.9 million from RM356.5 million a year ago. In addition, the operating profit margin contracted to 18.3% (FY2008: 18.8%) as a result of the tariff changes and higher operating costs during the year. That said, business risks remained low given Gas Malaysia’s position as the sole piped natural gas provider for small to medium-sized industrial users. As at end-FY2009, Gas Malaysia’s financial profile remained robust with cash and deposit balances of RM347.8 million. Its consistently strong operating performance and relatively modest capital spending in recent years have enabled the company to accumulate large cash balances and pare down all its borrowings. There were no amounts outstanding under the rated programmes as at end-FY2009. MARC views Gas Malaysia’s financial flexibility as strong in view of its sound liquidity position and available credit facilities of RM700 million. The company’s financial results are expected to show further improvement, although MARC notes the moderation in Malaysia’s manufacturing output for the month of July.

Gas Malaysia faces an ongoing challenge of securing more gas to meet the growing demand of its consumer, commercial and industrial customers. The gas utility managed to secure an additional 82 million metric standard cubic feet per day (mmscfd) (on top of the current 300 mmscfd) in December 2009 until December 2011. Although the additional gas supply addresses current supply constraints to some extent, MARC believes that the long-term security of supply remains a key business issue. The expiry of its gas supply agreement in 2012 further exposes Gas Malaysia to contract renegotiation and gas supply risks. MARC draws comfort from the essentiality of Gas Malaysia’s role as the sole piped natural gas utility in Peninsular Malaysia, which in turn supports the rating agency’s expectation that the utility will continue to receive strong regulatory support.

The stable outlook reflects MARC’s expectations that Gas Malaysia’s business and financial risks will remain low over the medium term, underpinned by its healthy revenue, regulated profit margin and good operational record.

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