Results

• Within Expectation: 1QFY16 PATAMI came in at RM219.4m, making up 24.7% of both HLIB and consensus full-year estimates respectively.

Deviations

• None.

Dividends

• Declared an interim dividend of 14 sen/share vs. full year forecast of 62.7sen/share. It is deemed within expectations as the group is expected to give out larger dividends in 4Q16 as per its usual seasonal pattern.

Highlights

• 1QFY16 revenue fell by 33.9% YoY mainly due to lower selling prices (-20%) for both Retail and Commercial segments. Retail segment’s volume dropped YoY due to weaker diesel demand. However, EBIT of the group was flattish YoY (+2.8%), showing its resilience in profitability despite selling price swings due to its shorter inventory holding periods.

• While revenue plunged 18.5% QoQ in line with weakness in MOPS, the group’s EBIT surged by 126%. The strong QoQ performance is due to significantly lower operating expenses in the quarter on the back of lower repair and maintenance expenses as well as lower manpower expenditure following variation in yearly bonus payment. Moreover, QoQ increase in sales volume in both Retail and Commercial business segments have also contributed to the improved profitability.

• Consumer spending is expected to remain cautious throughout the year due to increase in cost of living and economic headwinds.

• The group would continue to focus on its superior gasoline products namely PRIMAX 95 and 97 (Euro 4m-compliant) to help grow its Retail business volume. On its Commercial business segment, the group continues to look for better margins through product targeting leveraging in private sector infrastructure investments and construction projects.

• We do not foresee major earnings surprises this year with inventory holdings remaining short. Sales volume is anticipated to grow marginally this year amid challenging consumer environment.

Forecasts

• Maintained.

Catalysts

• Oil price stability which will provide margin visibility.

• Successfully expansion at oversea markets.

• Better cost management.

Risks

• Further weakness in consumer sentiment.

Valuation

We maintain our HOLD call with target price unchanged at RM23.28 based on 26x FY16 P/E. Lack of immediate catalyst of the stock renders the stock unappealing at the moment.

Source: Hong Leong Investment Bank Research - 12 May 2016