• Overview. PetDag 2Q21 core profit declined by 57% qoq to RM82m as sales volume declined by 4% due to re-imposition of full MCO during the quarter. However, on yoy basis, earnings improved to RM82m (2Q20: core loss RM4m) as more economic sectors are allowed to operate as compared to first full MCO in 2Q20, resulting in higher sales volume. This boosted gross profits by 32% yoy to RM532m. On the other hand, opex also rose by 18% to RM410m due to marketing activities.
   
• Key highlights. Sales volume improved by 15% yoy to 2.8bn litres (2Q20: 2.46bn litres; 1Q21: 2.87bn litres) as more economic sectors are allowed to operate.

• Against estimates: Inline. 1H21 core profit of RM273m was better than RM19m loss during 1H20, as inventory gains from rising oil price more than offset the decline in sales volume which fell by 6% yoy to 5.7bn litres (1H20: 6.1bn litres). This made up 35% of our full year forecast and 42% of consensus. We deem this as within our estimate on expectation of stronger earnings in 2H21.

• Dividend. A 2nd interim DPS of 10 sen was declared which is higher than 2Q20 DPS of 5 sen. This brings YTD DPS of 24sen (1H20: 10sen) which implies payout ratio of 87%.

• Outlook. Government has further relaxed SOPs as vaccination rate continues to ramp up. We expect earnings to recover in 2H21 in tandem with the opening in the economy.

• Our call. Maintain our BUY recommendation on PetDag with unchanged DCF-derived TP of RM22.90. This implies 27x FY22F P/E (Table 4). We still see it as one of the leading proxies to Malaysia’s post-Covid recovery theme, driven by oil demand recovery.

Source: BIMB Securities Research - 24 Aug 2021