• Overview. PetDag turned to core loss of RM23m in 1Q20 as it suffered from lower sales volume due to lockdown measures amidst Covid-19 pandemic. Revenue declined by 15.9% qoq and 7.5% yoy to RM6.6bn while EBITDA plunged 67.3% qoq and 78.8% yoy to RM95m. The sharp decline in oil price compounded the losses as it resulted in inventory loss worth RM36.3m.
• Key highlights. Total sales volume declined by c.8% qoq and 4% yoy to estimated 3.6bn litres. Other income from Kedai Mesra was largely flat at RM84m.

• Against estimates: Inline. 1QFY20 core EBITDA of RM95m lagged our estimate at 11%. We deem this as within our forecast on expectation of gradual recovery in sales volume in 2HFY20.

• Dividend. A 1st interim DPS of 5 sen was declared which is lower than 1QFY19 DPS of 15 sen.

• Outlook. Recall that Malaysia government imposed its movement control order (MCO) beginning 18th Mar 2020 which implies that the impact of MCO only reflected a 2-week demand loss in 1QFY20 result. The MCO has now been extended until 9th June 2020 but the government has eased the lockdown by allowing all economic sectors to open beginning May 4. Assuming demand will not immediately return to pre-MCO level, we expect weaker result in 2QFY20 while retaining our 2020 sales volume forecast of 12.5bn litres, implying 20% decline yoy (2019: 15.6bn litres)

• Our call. Maintain SELL on PDB with unchanged DCF-derived TP of RM18.20, which implies 52x FY20E P/E before easing to 25x FY21F P/E (Table 4). We believe this is fair given its earnings risk from lower sales volume resulting in lower dividend yield.

Source: BIMB Securities Research - 19 May 2020