Weaker but no surprise

• PDB’s 1Q18 core profit fell 13% yoy and 23% qoq to RM210.4m mainly on weaker retail segment. Overall, it was largely within ours and consensus expectations at 22% and 20% respectively.

• Sales volume grew 3% estimated at 3,650 mil litres driven by the commercial segment, up 8%, which more than offset the 2% decline in retail gasoline and diesel sales volume.

• GST abolishment and re-introduction of fuel subsidy could be the impetus to turnaround the declining retail sales volume. We hold our call under review pending the analyst briefing later today.

Weaker profits despite higher sales

PDB’s 1QFY18 core earnings declined 13.5% yoy to RM210.4m despite higher sales volume which rose 3% (est. 3,650 mil litres) amidst higher average selling price (ASP). While this led to +4.3% revenue growth to RM7.1bn, the gains were offset by higher opex. Overall, earnings were within ours and consensus estimate at 22% and 20% respectively.

Higher opex dragged retail segment

Retail operating profit fell 14.5% to RM165.8m as margin contracted to 4.5% (1QFY17: 5.2%) amidst higher admin and LPG product cost in its bid to raise sales volume. Retail operating profit was also impacted by declining gasoline and diesel sales volume (-2% yoy), which was partly negated by inventory gain due to rising MOPS price.

Commercial sales growth remained intact

The commercial segment recorded higher sales volume of 8% yoy on higher demand for various products including fuel oil, diesel, bulk LPG and sulphur. We also note that jet fuel sales grew following contracts secured with AirAsia for additional flight routes and frequencies and new airlines operating at KLIA as shared by management in the prior analyst briefing.

Declared lower first interim dividend of 13 sen

PDB declared its first interim DPS of 13 sen which implies payout ratio of 60%. This was lower than 1QFY17 DPS of 14 sen.

Recommendation under review

While retails sales volume has been on a downward trend in 1QFY18, the GST abolishment coupled with sustained fuel subsidy could give the much-needed catalyst to boost consumer consumption. We hold our recommendation under review pending analyst briefing today.

Source: BIMB Securities Research - 21 May 2018