Results

• Below HLIB & consensus: 4QFY15 PATAMI surged more than 20x YoY bringing full year FY15 PATAMI to RM790m, making up 89% of HLIB and consensus full-year estimates respectively.

Deviations

• Primarily due to sharp drop in MOPS prices resulting in larger than expected inventory loss.

Dividends

• Declared an interim dividend of 20 sen per share bringing 12M15 total dividend to 60 sen versus our full year forecast of 63 sen per share.

Highlights

• 4QFY15 revenue fell by 21% YoY mainly due to decrease in average selling price by 18% coupled with a decrease in sales volume by 2%. Notwithstanding, PBT margin improved 10-fold due to significantly lower impact on margins from drop in MOPS due to better inventory management.

• QoQ, net profit plunged 57.9% mainly due to impact from sharp drop in MOPS in 4QFY15 resulting in lower margins. This is evident with its operating margins dropping to 2.2% from 4.6% in the preceding quarter. Higher OPEX due to planned repair & maintenance works at terminals and petrol stations have also partially resulted in lower profits albeit at a smaller scale compared to MOPS movement.

• On a full year basis, top line registered 23.2% YoY drop due to decrease in selling prices and volume of 19% and 4% respectively. Sales volume of diesel has been negatively affected by the Managed Float implementation beginning Dec 2014. Nevertheless, profitability has improved significantly with EBIT surging 50.2% YoY due to lower inventory held which leads to lower stockholding losses amid plunge in MOPS.

• Moving forward, we believe the group’s earnings may improve YoY as current crude oil prices are already at multi-year low levels, implying lesser risk of sharp decline this year which could bring more volatility to the MOPS pricing.

Forecasts

• FY16 core net profit is trimmed by 1.6% after adjusting for a slightly more conservative margin (EBITDA margin trimmed to 5% from 5.1% previously. FY17 forecast of RM899m is introduced with 1% volume growth assumption).

Catalysts

• Higher possibility of upward oil price movement from current base leading to potentially higher margins from stock holding gains.

• Efficient cost management.

• Better inventory management.

Risks

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

Valuation

• Hold call maintained with TP reduced to RM23.28 from RM23.67 with unchanged PER of 26x, consistent with comparable consumer stock Nestle.

Source: Hong Leong Investment Bank Research - 22 Feb 2016