Highlights

• Following are the salient points from analyst briefing yesterday.

• Overall group 9M15 sales volume was lowered by 5% YoY attributed by: i) -11% in retail segment; ii) +2% in commercial; iii) -4% in LPG; and iv) -8% in lubricants. Retail segment volume fell was mainly due to diesel demand has shi fted from retail to commercial arising from narrowing price gap after implementation of managed float pricing system in Dec14 but partly offsetting by higher RON97 volume. PetDag managed to capture higher sales volume for RON97 as it launched its New Petronas Primax 97 (Euro4m compliant)ont 19 Aug 15, two weeks ahead of its competitors.

• In term of commercial segment, volume has increased by 2% mainly due to higher demand in Diesel and Bitumen. LPG and Lubricant volume have fell mainly due to cautious market sentiments post GST implementation.

• QoQ, despite Brent crude oil fell 19%, PetDag manage to mitigate the lag loss with EBIT margin only decrease slightly from 5.8% to 4.6% mainly due to effective inventory management (has reduced from 8-9 days to 4-5-days) which helped to cushion impact from volatile oil price envi ronment . To note, July 15 and August 15’s lag loss is only RM10m despite Brent crude price fell by 11% and 15% MoM respectively.

• Both 9M15 retail and commercial registered lower revenue YoY, but EBIT increased YoY mainly due to lower opex. 9M15 opex was lower by RM123m mainly due to lower advertising, promotion expenses and other cost reduction efforts undertaken by Petdag. The company will maintain its opex at RM300-320m level going forward.

• In 3Q15, Petdag has opened 2 new petrol stations bringing 9M15 total new stations to 15 (versus full year target of 20-30 stations).

Forecasts

• Unchanged.

Catalysts

• Oil price stability which will provide margin visibility.

• Successful expansion in oversea markets.

• Higher dividend payout.

Risks

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

Valuation

• We maintain our HOLD call with unchanged target price of RM23.67 based on unchanged 26x FY16 P/E.

Source: Hong Leong Investment Bank Research - 4 Nov 2015