• 3Q18 core profit fell 14% yoy to RM284m on higher marketing costs and effective tax rate. Overall, 9M18 core earnings dipped 2.7% and were inline with ours/consensus forecast at 72%/74%.

• Sales volume for retail and commercial segment grew 3% and 7% qoq respectively as a result of higher promotional activities, helped to mitigate YTD decline in sales volume to -1%.

• Maintain BUY with unchanged TP of RM30. We believe sales volume for the commercial segment to further pick up in coming quarters amidst lower oil prices.

Weaker earnings on higher opex and effective tax rate

PDB’s 3Q18 core earnings declined 14% yoy to RM284m mainly due to higher opex and effective tax rate. The core earnings were after adjusting for impairment of trade receivables amounted to RM6.9m and PPE write-off amounted to RM6.7m. The higher opex was due to higher marketing expense of RM30.2m for various advertising and promotion spending whereas effective tax rate in 3Q18 was at 31% (3Q17:24%). Overall, 9M18 earnings fell 2.7% and were within ours and consensus estimates at 72% and 74% respectively.

Higher marketing costs hurt retail margin

Retail operating profit fell 13% yoy and 3% qoq to RM232m as higher marketing costs saw operating margin easing to 6% (3Q17: 7.8%; 2Q18: 6.4%). In a bid to boost petrol sales volume and customers’ purchase at Kedai Mesra, PetDag held the Mesra Bonanza campaign. As a result of aggressive marketing, sales volume for both retail and commercial segment grew by 3% and 7% respectively on qoq basis. This cushioned PDB’s sales volume from further decline; YTD, sales volume eased by only 1% yoy.

Declared lower 3rd interim dividend of 16 sen

PDB declared its 3rd interim DPS of 16 sen which implies payout ratio of 57%. This was lower than 3QFY17 DPS of 20 sen which brings YTD DPS to 45 sen (9M17: 48 sen).

Maintain BUY with unchanged TP RM30.00

Maintain BUY call on PDB with an unchanged DCF-derived TP of RM30.00. This is based on a 7.5% WACC and long term terminal growth rate of 1.5% which implies 26.3x FY19E PE. We believe PDB can capture higher sales volume in coming quarters particularly from its commercial segment amidst declining oil price.

Source: BIMB Securities Research - 28 Nov 2018