GASMSIA- trading at a high PE multiple

 Background

Gas Malaysia Bhd ('GASMSIA') is listed on the exchange today. Its IPO price was at RM2.20 & it traded at a price between RM2.39 & RM2.52 (in the morning session). GASMSIA is one of two gas distributors in Malaysia. It is mainly involved in the distribution of natural gas where pricing is regulated.

I have re-tabulated below the new buying & average selling price for GASMSIA as announced by the Government on May 30, 2011 (see Page 16 of Prospectus). However, the current buying & average selling price is still based on the revised prices implemented on June 1, 2011. Further implementation of the new pricing structure would lead to further compression of GASMSIA's profit margin.



Table 1: GASMSIA's selling & buying price from 2011 to 2015

I have done a projection of the earning for GASMSIA for FYE31/12/2012. For the purpose of projection, I relied on the relevant pricing structure (page 15 of Prospectus) to compute the average selling price & buying price for the relevant financial periods.


Table 2: GASMSIA's selling & buying price from 2009-2012

Projected Earning


Table 3: GASMSIA's Projected Earning for FY2012

Assumptions

1. Average Selling & Buying Prices for FYE31/12/2012 remained unchanged as per prices as at June 2011.
2. Volume is computed backward by dividing Revenue with Average Selling Price. This is quite close to the Volume Usage as per page 64 of Prospectus.
Assuming a volume growth of 10%, we can arrive at the Revenue for FYE31/12/2012.
3. Gross Profit margin is as per Table 2 above.
4. Based on Net Profit for FY2009, FY2010 & FY2011, we can compute Net Profit margin as well as the Other Expenses, Net as a percentage of Revenue.
5. Assuming Other Expenses, Net as a percentage of Revenue remained unchanged at about 7%, we can arrive at the Net Profit margin & Net Profit for FYE31/12/2012.
Hence, we can compute the EPS for FY2012 which is about 10 sen.

Valuation

We can use Petgas's PE multiple to value GASMSIA. Petgas is currently trading at a PE of about 24 times. GASMSIA should not command a PE multiple equivalent to Petgas. If we assume a 10% discount, then the fair value of GASMSIA is about RM2.16 (10 sen x 24 times x 90%). So, GASMSIA which is currently trading at RM2.44, commands a PE of 24 times or equivalent to Petgas's current PE multiple. I do not believe GASMSIA deserves such high PE multiple. Based on the above, I think one should avoid the stock for now.