MARC Ratings has affirmed its AAAIS /MARC-1IS ratings on Gas Malaysia Distribution Sdn Bhd’s (GMD) Islamic Medium-Term Notes Programme and Islamic Commercial Papers Programme with a combined limit of up to RM1.0 billion. The ratings outlook is stable. As at end-December 2023, the outstanding amount under the programmes stood at RM330.2 million.
The ratings reflect GMD’s predictable earnings and cash flows, supported by its strong market position as the sole owner of the natural gas distribution system (NGDS) in Peninsular Malaysia, and by the regulatory Incentive-Based Regulation (IBR) framework that protects revenue via tariff adjustments.
In 2023, GMD collected RM402.3 million in tolling fees charged to gas shippers for the use of its gas pipelines. This was RM30.3 million lower than its annual revenue requirement (ARR) for the year. The difference would be recovered through tariff adjustments in the coming year. Reflecting the regulated nature of its revenue, GMD has been able to maintain its operating margin at a strong 53.0% in 2023, consistent with previous years.
For 2024, GMD anticipates its tolling fees to remain below its ARR based on lower firm capacity reservation from glove manufacturers amid a still competitive landscape in the glove sector. The difference, however, is expected to be recovered through a distribution tariff surcharge in 2025.
GMD spent RM215.2 million of its regulated capex in 2023, mainly on NGDS expansion. This came approximately 38% below budget, mainly due to logistical challenges that had hindered procurement. The rating agency, nevertheless, understands that there is now sufficient pipeline stock secured to cover GMD’s capex needs for the remainder of regulatory period two (RP2) (2023-2025). As such, GMD anticipates being able to meet its remaining projected capex of over RM600.0 million for 2024 and 2025, and by extension the overall RP2 regulated capex.
While total borrowings are likely to increase moderately to part fund capex, GMD’s capital structure is expected to remain conservative, with a debt-to-equity ratio of 0.25x (end-RP2 target: 0.3x).