• PDB’s 4Q17 core profit grew 13% yoy but dropped by 40% qoq, bringing FY17 earnings to RM1.1bn. Overall, it came in largely within ours and consensus expectations at 105%.

• On yearly basis, commercial segment volume growth were intact while retails sales volume declined

• Declared a 4th interim DPS of 27 and a special dividend of 22 sen

• We downgrade to HOLD (from BUY) with unchanged TP of RM26.60. We think declining retail sales volume would be a drag to earnings moving forward.

FY17 core earnings within estimate

PDB ended its FY17 campaign with core earnings growth of 12.6% to RM1.1bn, largely within ours and consensus estimate at 105%. We attribute the earnings growth mainly on lag gain impact and higher sales volume from its commercial segments.

Commercial segment drives the sales volume

PDB’s commercial segment performance remained robust, as aviation and diesel boost sales volume by 8% yoy, contributing to 10% EBIT growth for the segment at RM138m (4Q16: RM125m). On the other hand, retail sales volume fell 6% yoy, in tandem with overall industry declining rate. Despite that, the segment’s operating profit (include both Kedai Mesra and interest income) grew 8% to RM228m (4Q16: RM212m) on lower depreciating charges and opex.

Aggressive marketing campaign may not be effective

Recall during previous analyst briefing, management has guided that it would pursue aggressive marketing strategy in the quarter to halt retail sales volume decline. While we note that it recorded higher opex of c.RM30m qoq, there was no tangible recovery in retail sales volume in the quarter.

Declared fourth interim and special dividend

A fourth interim DPS of 27 sen was declared which is lower than the 30 sen DPS announced for 4Q16. However, total dividend declared in FY17 was higher at 75 sen (FY16 DPS: 70 sen). This excludes the special DPS of 22 sen arising from divestment proceeds of its Vietnam’s LPG business in 3Q17.

Downgrade to HOLD, limited upside

We see no meaningful catalyst to earnings while the recent share price recovery has reflected its potential, in our view. Downgrade to HOLD with an unchanged TP of RM26.60. This is based on PDB’s 5-year historical PE average of 27x, applied to FY18 EPS. We expect earnings growth to be dampened by weak retail sales volume, partially offsetting the growth in commercial segment.

Source: BIMB Securities Research - 27 Feb 2018