The government’s revised gas subsidy is unlikely to affect MMC Corporation Bhd’s associate Gas Malaysia in the short term, according to analysts.
“Although the gas price is reduced for Gas Malaysia’s consumers, we are assuming a similar pass-through to what the company enjoyed previously. As such, Gas Malaysia should still make the same operating profit regardless of the price of gas,” according to OSK Research.
This should provide some relief for MMC which has seen its share price tumble on fears that the newly gazetted windfall tax for independent power producers (IPPs) will eat into the cash flow of its subsidiary and the country’s largest IPP, Malakoff Bhd.
According to MMC’s latest annual report for FY2007, the company’s main revenue source is its energy and utilities segment — which includes its power business and Gas Malaysia — that contributes 75% of group turnover.
“Gas Malaysia has been a significant contributor to MMC all this while and the revised gas prices, while higher, is also less steep. This would mean that a fewer number of consumers would actually look to switch to alternatives,” said an analyst.
However, one caveat is that under the new gas pricing structure, the government is actually looking to reduce the amount of subsidy for natural gas in order to match global prices.
“Noting that gas prices will be increased gradually over 11 years and the slowdown in the global economy over the next two years, we are paring down volume growth for Gas Malaysia from 10% and 8% in FY2009 and FY2010 to 5% and 4% respectively,” said OSK.
MMC’s share price closed at a 12-month low of RM2.30 yesterday.
Last Friday, the government released its revised gas subsidy structure that saw the price of natural gas increasing by a smaller percentage than previously announced. On June 4, the government announced that the price for natural gas would increase between 117.6% and 187.6%.
However, intense lobbying by manufacturers and consumers had prompted the government to delay the implementation of the new gas prices. Now gas is priced 111% higher at RM23.88 per mmbtu (million British thermal units) for industrial players who consume more than two mmscfd (million standard cubic feet per day). For those who use below that benchmark, gas is priced 71.4% higher at RM22.06.
Source : The Edge
