PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 20 Feb 2020, 9:10 AM


Petron Msia Refining and Marketing - Unfavorable Dynamics A Bane

Author:   |    Publish date:

Petron Malaysia Refining and Marketing Berhad (Petron) 1QFY18 results were disappointing as the spike in the volatility of oil prices proved to be a menace. As a result, Petron’s 1QFY18 net profit dipped to RM72.1 mln, (- 33.5% YoY). The lower-than-expected net profit achievement, meeting only 18% of our full-year estimates, was the result of unfavourable dynamics between the feed cost (i.e. crude oil) and finished products. Revenue held up well nonetheless, thanks to firmer pump prices and higher volume sold. Operating margin, however, halved to 2.7% (4Q17: 3.7%) against 5.3% for the same period a year ago. No dividend was declared during the quarter. In view of challenging prospects, we lower our call on Petron to a Neutral with a revised target price of RM8.61 (RM13.62 previously) derived based on sharply higher capex guidance by the company in view of Euro5 investment, earnings adjustments, housekeeping along with higher capital cost of 11.68% (previous: 8.15%) in line with the changing of economic and equity dynamics (i.e. risk-free rate, risk premium, beta).

  • Higher 1QFY18 revenue (+6.6% YoY) driven by higher prices and volume sold. Global oil prices in 1QCY18, using Brent prices as a benchmark, recorded an 8.6% YoY jump (in Ringgit terms). Petron also registered higher sales volume of 8.7mn (+8.7% YoY) barrels for the quarter, owing to fair economic conditions and higher number of petrol stations.
  • Net profit for 1QFY18 dropped 33.5% YoY to RM72.1mn despite the 6.6% increase in revenue. Operating margins took a hit as it eased to 2.7% in the quarter (4QFY17: 3.7%), no thanks to unfavourable dynamics between feed cost and finished product. Oil price volatility spiked to 2.31% in first quarter due to various exogeneous factors against 1Q17 of 2.01%.
  • Outlook. The Group is likely to see margin pressures ahead, brought about by higher capital expenditures in preparation for adoption of the new Euro5 diesel requirements, while also managing the volatility of oil prices. Euro5 is due to reach the Malaysian market in 2020, but with investments having to be undertaken now including the changing of refinery specifications and all related pump station fittings (e.g. new tanks). In light of these challenges, our call on the stock is lowered to Neutral. Re-rating catalyst may come from lower volatility of oil prices however, especially towards the end of rate tightening in the US and the easing of geopolitical tension involving major global oil producers.

Source: PublicInvest Research - 25 May 2018

Share this

Related Stocks

Chart Stock Name Last Change Volume 
PETRONM 5.03 +0.01 (0.20%) 20,200 

  Be the first to like this.


227  321  535  1188 

Top 10 Active Counters
 INNATURE 0.68+0.04 
 PWRWELL 0.375+0.01 
 DGB 0.065-0.005 
 XOX 0.055+0.005 
 MYEG 1.28+0.05 
 SANICHI-WE 0.005-0.005 
 MTOUCHE 0.1950.00 
 JAG 0.045+0.005 
 HSI-C7Q 0.205-0.025 
 SANICHI 0.050.00 
Partners & Brokers