• Overview. Petronas Dagangan (PetDag) 3Q22 core PATAMI rose by  84% QoQ and >100% YoY to RM286mn mainly driven by the recovery in commercial segment. Its operating profit surged to RM270mn  (3Q21:RM68mn, 2Q22: LAT RM1mn) thanks to lower MOPS price and  sales volume growth particularly the Jet A1 fuel. Recall that the segment recorded negative operating profit in 1H22 due to higher product cost amidst surging oil price.

• Key highlights. Total sales volume grew by 6% QoQ and 43% YoY to  4bn litres driven by pent-up demand amidst full economic reopening.  This pushed 9M22 sales volume growth to 11.2bn litres (9M21: 8.5bn  litres), a YoY jump of 33%.

• Against estimates: Above. 9M22 core profit increased by 108% YoY to RM567mn. This is above both our and consensus’ estimate or at  83% and 94% of full year forecast respectively. The deviation against our forecast stems from overestimation of depreciation charges. As such, we raise our FY22-24F earnings forecast by 5-9% as we tweak  lower our depreciation charges (Table 4).

• Subsidy receivable. Management guided that the company has received all outstanding subsidy receivables from the government in  4Q22 which will ease its working capital requirement.

• Dividend. A 3 rd interim DPS of 20sen was declared which is similar to  3Q22 DPS. This brings YTD DPS to 36sen (9M21: 44sen) which implies a payout ratio of 63% (9M21: 111%).

• Outlook. As sales volume has normalised to pre-pandemic level, the  ompany has shifted its focus towards growing its non-fuel segment via the expansion of Café Mesra outlets.

• Our call. We maintain a HOLD call on PetDag with a higher DCF-derived TP of RM21.70 (from RM21.50). This implies 25x FY23F P/E.

Source: BIMB Securities Research - 30 Nov 2022