Background

Petronas Dagangan Bhd ('Petdag') is in the marketing and distribution of various petroleum products, such as motor gasoline, aviation fuel, kerosene, diesel, fuel oil, bunker fuel, lubricants, LPG, and asphalt.

Recent Financial Results

Petdag has recently announced its results for QE30/6/2010, where its net profit increased by 24% q-o-q to RM199.7 million while turnover was unchanged at about RM5.456 billion. The increased net profit on a q-o-q basis was attributable to lower operating expenditures.

Compared to the previous corresponding quarter (QE30/6/2009), Petdag's net profit declined by 2.9% on the back of a 14.2%-increase in turnover. The higher turnover on a y-o-y basis was higher selling prices & sales volume while lower net profit was attributable to lower gross profit.


Table: Petdag's 8 quarterly results



Chart 2: Petdag's last 9 quarterly results

Valuation

Petdag (closed at RM10.80 yesterday) is now trading at a PE of 14.2 times (based on last 4 quarters' EPS of 75.80 sen). At this multiple, Petdag is deemed fairly valued. If we assumed a PE of 15 times, the value of Petdag would be about RM11.40.

Technical Outlook

What really interest me is the long-term chart of Petdag. Chart 2 is the monthly chart plotted on log scale, which shows a stock that is in an uptrend line. Petdag has recently broken above the strong horizontal resistance of RM9.20 and it could be slowly rally towards the parallel line at about RM17-18.00.


Chart 2: Petdag's monthly chart as at Sept 1, 2010_log scale (Source: Tradesignum)

If we look at Chart 3, which is a monthly chart plotted on arithmetic scale, we can see from a different perspective the potential of the current rally in the stock. If the current breakout can travel a distance equivalent to 1 time the distance between the breakout level & its recent low of RM6.20, then the target price could be RM12.20. Alternatively, it may travel a distance equivalent to 1.68 time the distance between the breakout level & its recent low, then the target price could be RM14.24.

In 2007, Petdag broke above its then strong horizontal resistance of RM4.00 & traveled a distance of 1.68 time the distance between the breakout level (of RM4.00) & the low of about RM1.00.


Chart 3: Petdag's monthly chart as at Sept 1, 2010_arithmetic scale (Source: Tradesignum)

Conclusion

Based on technical consideration, Petdag could be a trading BUY or a medium-term investment. However, Petdag is trading very close to its full value of RM11.40 (assuming a PE of 15 times).

Note: Petdag is trading at RM11.80 as at 4.12pm!