Results

• Above Expectation: 1QFY15 PATAMI surged by 33% YoY, making up 30% of HLIB and consensus full-year estimates.

Deviations

• Mainly due to lower opex as a result of lower marketing and promotion expenses.

Dividends

• Declared an interim dividend of 12 sen per share versus our full year forecast of 48 sen per share.

Highlights

• 1QFY15 revenue fell by 26% YoY mainly due to decrease in average selling price by 22% coupled with a decrease in sales volume by 6%. For the retail segment, diesel sales volume fell by 32% YoY mainly due to impact of stricter enforcement by authorities to curb diesel leakages. Sales volume for commercial segment was decreased by 2% YoY mainly due to lower sales for fuel oil.

• Despite the fall in revenue, operating profit rebounded from RM16m to RM287m QoQ mainly due to: i) higher gross profit as a result of rebounded in Mean of Platts Singapore (MOPS) price in 1Q15 which was in tandem with the rebounded in oil price; and ii) lower opex mainly due to higher repair and maintenance expenses on petrol station in preceding quarter coupled with lower manpower and marketing expenses.

• Overall, EBIT margin has improved from 0.2% to 4.7% QoQ. The lower opex incurred was also in line with company’s effort to cut cost with target to reduce opex by 15% in FY15.

• Despite better than expected 1QFY15 result, valuation remains lofty at current price. PetDag is trading at premium valuation of 32x FY15 P/E and 27x FY16 P/E. However, this is in line with Nestle’s val uation which currently t rading at 27x FY16 P/E given both also focusing on consumer products.

Forecasts

• Earning forecasts unchanged pending analyst briefing later this morning.

Catalysts

• Oil price to stabilise which provide margin visibility.

• Successfully expansion at oversea markets.

• Higher dividend payout.

Risks

• Fluctuation in the oil price
• Cost escalation due to aggressive expansion plan

Valuation

• We like the company business model with sustainable recurring income, however we believe the positive factors (rebounded in oil price and solid business model ) has been largely reflected in share price performance. Hence, we maintain our HOLD call and target price of RM21.14 based on 26x FY16 P/E (in line with historical average P/E) with projected dividend yield of 2.7%.

Source: Hong Leong Investment Bank Research - 12 May 2015