MARC Ratings has affirmed its AAAIS/MARC-1IS ratings on Gas Malaysia Distribution Sdn Bhd’s (GMD) Islamic Medium-Term Notes (IMTN) programme and Islamic Commercial Papers (ICP) programme with a combined limit of up to RM1.0 billion. The outstanding amount under the programmes stood at RM331.0 million as at end-July 2022. The ratings outlook is stable.
The affirmed ratings are mainly driven by GMD’s strength as the sole owner of the natural gas distribution system (NGDS) across Peninsular Malaysia and its predictable revenue under the incentive-based regulation (IBR) framework, which mitigates revenue risk. Revenue comprises tolling fee from natural gas distribution through the NGDS.
For 2022, based on secured firm capacity reservation, GMD is expected to achieve the regulated revenue as approved by the Energy Commission for the year. This suggests that there will be no revenue shortfall to be recovered in 2023, in contrast to this year when GMD will recover revenue shortfall of RM48.7 million under the IBR framework given lower tolling fee revenue of RM391.5 million (forecast RM440.2 million) in 2021. There is no change in the distribution tariff of RM1.715/GJ/day for January-December 2022, which was last revised in April 2021.
GMD registered pre-tax profit of RM222.0 million in 2021 with a strong operating profit margin of 52.6%. Cash flow from operations (CFO) stood at RM220.2 million with healthy CFO interest and debt coverages of 21.01x and 0.63x. GMD projects its debt-to-equity ratio (DE) to increase to 0.44x by 2025 from 0.24x in 2021 to optimise its capital structure in line with the IBR framework. As at end-2021, GMD had spent 60.1% of RM675.1 million in planned capex in Regulatory Period 1 (RP1: 2020-2022) with the remaining to be spent by year end. To date, GMD has funded its 2022 capex through internal cash.