• Overview. PetDag 3Q20 core profit recovered swiftly on qoq to RM213m (2Q20: RM4m) boosted by inventory gains from rising MOPS price and demand recovery post MCO. Gross profits almost doubled to RM765m (2Q20: RM402m) but partially offset by higher opex to RM564m (2Q20: RM475m). On yoy basis, earnings declined by 13% on the back of lower sales volume by 22%, which was partially offset by lower marketing and transportation costs.

• Key highlights. Sales volume remained well below pre-Covid level at estimated 2.9bn litres (pre-Covid quarterly average: 3.8bn litres) dragged particularly by commercial segment (jet fuel and diesel). Retail segment sales volume was lower by only 3% yoy. Other income from Kedai Mesra improved 24% qoq to RM72m but also 19% lower yoy.

• Against estimates: Inline. 9M20 core profit declined by 72% yoy to RM194m due to lower sales volume by 23% to 9bn litres (9M19: 11.7bn litres). This lagged our and consensus estimate at 56% and 58% respectively. We deem this as within our forecast as demand recovery path was largely within our base case scenario.

• Dividend. A 3 rd interim DPS of 11 sen was declared which is lower than 3Q19 DPS of 16 sen. This brings YTD DPS to 21 sen (9M19: 35 sen) which implies payout ratio of 105% (9M19: 50%)

• Outlook. Demand recovery for jet fuel is taking longer time as we anticipated. This will keep our 2020 sales volume forecast of 12.5bn litres intact, implying 20% decline yoy (2019: 15.6bn litres).

• Our call. Upgrade PetDag to HOLD (from SELL) with unchanged DCFderived TP of RM18.20. This implies 25x FY21F P/E (Table 4). We believe this is fair given improving demand outlook in retail segment but slower recovery in commercial segment will translate to lower dividend payment as compared to pre-pandemic level.

Source: BIMB Securities Research - 18 Nov 2020