MARC has reaffirmed the ratings of Gas Malaysia Sdn Bhd’s (Gas Malaysia) RM200 million Al-Murabahah Commercial Paper/Medium Term Notes (CP/MTN) Programme and RM500 million Al-Murabahah Medium Term Notes (MTN) Issuance Programme at MARC-1ID/AA+ID and AA+ID (Islamic Debt) respectively with stable outlook. The ratings continue to reflect its strong ownership structure; highly regulated industry; dominant position in the gas distribution business; efficient operations and a strong financial profile.

Gas Malaysia’s operating environment 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 introducing a certain degree of stability to its revenue and profitability. Whilst the ability to pass through any increases in gas costs ensures that operating margins are protected to a certain extent, the actual impact of the expected revision in gas has yet to be seen.

Lending support to Gas Malaysia’s dominant position in the gas distribution business is the captive market for gas, with a low risk of customers switching to alternative fuels and high barrier to entry given the large capital requirement in constructing the gas infrastructure. While Gas Malaysia’s customers are drawn from the industrial, commercial and residential sectors, the bulk of its revenue (99%) was contributed by the industrial sector comprising mainly manufacturing plants. Besides natural gas, LPG is also provided for residential and commercial customers, but its contribution is negligible, accounting for less than 1% of total revenue.

Gas Malaysia exhibited commendable performance during the year under review on the back of higher revenue and profitability. Based on Gas Malaysia’s latest audited results for FY2005, revenue rose to its highest level thus far, at RM948.9 million, 57.5% higher than that achieved in the previous year. Pre-tax profit similarly improved significantly by 111% to RM173.2 million from RM82.2 million recorded in FY2004. The improvement was largely contributed by higher sales volume recorded at 73.4 million mmBTU, which is 57.2% higher than the previous period.  For 10 months period ended October 2006, Gas Malaysia’s revenue breached the RM1 billion mark, on the back of a steady growth in sales volume.