Petronas Dagangan (PetDag) 1HQ23 core PATAMI of RM573mn (+103% YoY) exceeded our expectation at 67%. We are particularly surprised with Petdag’s strong sales volume that hit 4.1bn litres, the highest quarterly sales volume since 2015. We reckoned that this was stemmed from higher demand from aviation and marine segments. This, coupled with favourable oil price movement, has contributed to stellar performance in 1H23. We raised our FY23-25F earnings forecast by 15-18% as we revisit our key assumptions. Accordingly, we raised our FY23 DPS forecast to 72 sen which implies yield of 3.2%, based on payout ratio of 70%. All-in, we upgrade PetDag to a BUY (from HOLD) with higher DCF-derived TP of RM24.30 (from RM21.70). Key risk to our call is possible adverse impact from upward trend in oil price in 3Q23.

• Above expectation. 1H23 core profit of RM573mn (+103% YoY) exceeded both our and consensus’ estimates, making up 67% and 61% respectively. We deem this as within our estimate as it was boosted by a one-off impact of lower product cost trend.

• Dividend. A 2nd interim DPS of 18sen was declared which is higher than 2Q22 DPS of 11sen. This brings YTD DPS to 33sen (1H22: 16sen) which implies a payout ratio of 57% (1H22: 56%).

• QoQ. Revenue rose 3.1% to RM8.9bn mainly driven by higher sales volume that grew 6% to c.4.1bn litres (Chart 1). This had more than offset the impact of lower ASP (-3%). However, EBITDA margin declined by 50bps to 5.1% (1Q23: 5.6%) due to increased repair and maintenance activities in the commercial segment.

• YoY. Revenue declined 6.2% YoY due to lower ASP in tandem with lower oil price. Nonetheless, core profit grew by 77% to RM275mn due to (i) favourable impact of lower product cost from downward trend of oil prices and (ii) higher sales volume in commercial segment that rose by 20% YoY.

• YTD. Core profit grew by +103% YoY to RM573mn mainly due to higher profit contribution from commercial segment driven by higher volume from Jet A1 fuel and diesel following the country’s border reopening from the pandemic in 2Q22. Sales volume grew by 10% YoY to 8bn litres (1H22: 7.3bn litres).

• Outlook. We are optimistic that Petdag will sustain its sales volume driven by upbeat demand outlook from aviation and marine segments. Hence, we raised our FY23F/24F/25F earnings by 18.2%/15.8%/15.9% (refer Table 4) to account for higher volume assumption.

• Our call. Upgrade Petdag to a BUY (from a HOLD) with a higher DCFderived TP of RM24.30 (from RM21.70). This implies 22x FY24F P/E. Key risk to our call is possible adverse impact from upward trend in oil price in 3Q23.

Source: BIMB Securities Research - 29 Aug 2023