RHB Research Sees Nearly 30% Upside for Gas Malaysia Bhd Amid Higher Crude Oil Prices

RHB Research has initiated coverage on Gas Malaysia Bhd (KL:GASMSIA) with a 'buy' call and a sum-of-parts (SOP)-based target price of RM6.50, implying nearly 30% upside to the current price.

The research house believes that the current elevated crude oil price environment is beneficial for Gas Malaysia, which tends to benefit from higher oil prices. The company's shipper division earns a fixed margin on Malaysia Reference Price (MRP), which tracks Brent crude oil.

RHB forecasts MRP to increase 26% year-on-year in 4Q due to the nine-month lag to Brent oil price movement, and expects a stronger impact in 2027 with a 28% year-on-year increase. The company has also received approval from the Energy Commission to build a new regasification terminal 4 (RGT4) in Yan, Kedah, which is expected to be commissioned by 2030.

The RGT4 project is crucial for ensuring a stable gas supply to new gas plants coming online in 2030, and RHB believes it will be a key gas supplier to Malakoff Corp Bhd's (KL:MALAKOF) upcoming 2.8GW gas plants. The company estimates that the project will contribute 49 sen/share valuation from its SOP.

RHB also notes that Regulatory Period 3 (RP3) tariffs provide stable earnings to Gas Malaysia, which is currently the sole operator of the natural gas distribution system network. The company expects these tariffs to provide a stable earnings base for its regulated business, contributing 40% of group profits.