• Overview. 4Q19 core earnings more than doubled to RM131m mainly due to low base effect as PetDag suffered from inventory lag loss due to sharp drop in MOPS price in 4Q18. On qoq basis, earnings fell 46.4% due to lower sales volume (-c.2% qoq), higher product and marketing costs and network upgrade costs.

• Key highlights. Total sales volume declined by c.2% qoq due to shortage of Petcoke supply following refinery turnaround. It was partially offset by higher diesel volume from upstream sector. Other income from Kedai Mesra was flat at c.RM80m.

• Against estimates: Below. FY19 core profit of RM822m (-0.4% yoy) lagged both our and consensus’ forecasts at 85%/89% respectively.

• Dividend. A 4th interim DPS of 25 sen and a special DPS of 15 sen were declared. This brings YTD DPS to 85 sen (FY18: 70 sen) implying payout of 103%.

• Outlook. We cut our FY20 sales volume assumption by 2% to account for lower demand from jet fuel amidst Covid-19 outbreak. We also increased our opex assumption by c.RM80m p.a. to reflect higher advertising and promotional cost. This reduces our FY20-21F earnings by 11%/8% (Table 3). We also introduced our FY22F figure in this report (Table 5).

• Our call. Maintain BUY on PDB with a lower DCF-derived TP of RM24.60 (from RM27.00), which implies 27.6x FY20E P/E (Table 4). We believe the stock makes a compelling investment case owing to its defensive attributes.

Source: BIMB Securities Research - 26 Feb 2020