Overview. PetDag 3Q21 core profit improved by 45% qoq to RM119m driven mainly by higher sales volume from commercial segment. This had more than offset the impact of lower retail sales volume amidst the MCO and led to a marginal increase in gross profit by 1.1% to RM564m. Opex declined by 9% due to lower retail dealer’s commission but this was negated by higher tax expenses. On yoy basis, earnings declined by 44% due to the impact of MCO.

Key highlights. Sales volume declined by 12% yoy but increase by 1% qoq to 2.8bn litres (3Q20: 3.2bn litres; 2Q21: 2.8bn litres) as more economic sectors are allowed to operate.

Against estimates: Inline. 9M21 core profit grew by 102% yoy to RM393m on the back of inventory gains from rising oil price. This had more than offset the decline in sales volume which fell by 8% yoy to 8.5bn litres (9M21: 9.2bn litres). This made up 50% of our full year forecast and 60% of consensus. We deem this as within our estimate on expectation of stronger earnings in 4Q21.

Dividend. A 3 rd interim DPS of 20 sen was declared which is higher than 3Q20 DPS of 11 sen. This brings YTD DPS of 44sen (9M21: 21sen) which implies payout ratio of 110%.

Outlook. Government has allowed international air travels and we expect this to provide significant boost to its earnings in 4Q21. While the emergence of new Covid-19 variant Omicron could pose downside risk to our forecast, we made no changes at this juncture pending more clarity on its threat.

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 - 29 Nov 2021