Results

• Inline with Expectation: 2QFY15 PATAMI surged by 33% QoQ bringing 1HFY15 PATAMI to RM479m, making up 70% of HLIB and consensus full-year estimates.

Deviations

• We deemed the quarter result to be inline as we expect weaker 3Q result due to lower oil price.

Dividends

• Declared an interim dividend of 14 sen per share bringing 1H15 total dividend to 26 sen versus our full year forecast of 48 sen per share.

Highlights

• 2QFY15 revenue rebounded 6.4% QoQ due to increase in average selling price by 5% and sales volume by 2%. QoQ EBIT margin continue to improve from 4.7% to 5.8% mainly due to: i) higher gross profit as a result of rebound in Mean of Platts Singapore (MOPS) price in 2Q15 which was in tandem with the rebounded in oil price (+16% QoQ); and ii) lower opex arising from cost reduction effort. To note, in 2Q09, oil price rebounded 31% QoQ and PetDag achieved 5.8% EBIT margin in that quarter due to lower inventory cost.

• 1H15 opex was lower by RM107m, in line with company’s effort to cut cost with target to reduce opex by 15% in FY15.

• Despite strong 2QFY15 result, we expect weaker 3Q result as Brent oil price has dropped by 23% since end of June 15. The uncertainty in crude oil price movement due to impact of the lifting of sanctions against Iran and continue production increased from OPEC fail to provide margin visibility in near term.

• PetDag is trading at premium valuation of 31x FY15 P/E and 26x FY16 P/E. However, this is in line with Nestle’s valuation which currently trades at 27x FY16 P/E given both also focus on consumer products.

Forecasts

• Earnings forecasts unchanged pending analyst briefing later this morning.

Catalysts

• Oil price stability which will provide margin visibility.

• Successfully expansion at oversea markets.

• Higher dividend payout.

Risks

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

Valuation

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 - 7 Aug 2015