Before the interview, I have re-computed my financial projection after reading the comment from the management of GASMSIA that the investment community was fussing too much about the decline in its profit margin. I have tweaked the projection slightly and extended the period to 2015. Basically, the earning is about the same for FY2012.
A) Volume of sale increased by 10% in FY2012 and increased subsequently at 5% per annum from FY2013 to FY2015.
B) Margin is as follows:
C) Other Cost of Sales expenses assumed to be 3% of Revenue for FY2012 and increased subsequently at 10% per annum from FY2013 to FY2015.
D) Admin expenses, which was about RM30 million for FY2009-2011, assumed to rise at 10% per annum from FY2012.
E) Effective tax rate at 24%.
F) Profit after Tax for FY2009-2011 from the projection is about RM768 million. This is very close to the actual total of RM770 million (see page 15 of Prospectus).
GASMSIA's modus operandi is a tolling operation. A tolling operation has its pros & cons. It is very stable albeit unexciting. You see that in stocks as as Litrak where growth can only come from increase in volume of cars passing thru its toll booths.However, if there are strong sales volume (& revenue) growth, then the earning could jump. You can see that in Airport and Biport. We may see a sudden rise in sale volume (& revenue) for GASMSIA but the unfortunate thing is that the margin has dropped substantially. We do not know how much will the sales volume growth going forward. Natural gas is a cheap source of energy but are Malaysian users prepared to pay the higher prices? I have assumed a growth of 10% for FY2012 & 5% thereafter. This gives an EPS of 10.9 sen to 13.5 sen for period from FY2012 to FY2015. On the other hand, if I were to assume a growth of 10% from FY2012 to FY2015, GASMSIA's EPS would rise steadily from 10.9 sen to 16.7 sen for that period. As such, GASMSIA (closed at RM2.51) is trading at a PE of 23 times its FY2012 earning.That means GASMSIA is fully valued.
However, GASMSIA is breaking above the slightly expanding "trading range" of RM2.38 & RM2.52. An upside breakout of a trading range (albeit imperfect one) could signal the beginning of a bullish move.
Chart: GASMSIA's 15-min chart as at June 27, 2012_9.30am 9Source: Quickcharts)
When financial projection gives a different picture from the technical analysis (or the price chart), you have to make a judgement call. I tend to give credence to technical analysis than financial studies. As such, I would say GASMSIA has a bullish breakout and it is now a possible trading BUY.