Results

• Within Expectation: 6M16 PATAMI came at RM491.1m, making up 55.2% and 56.7% of HLIB and consensus full-year estimates respectively.

Deviations

• None.

Dividends

• Declared an interim dividend of 14 sen/share, bringing 1H16 total dividend to 28 sen/share, 45% of our full year forecast. We expect a larger payout in 4Q16, in line with historical trend.

Highlights

• YoY, 2Q16 core net profit declined slightly by 0.7% to RM271.7m due to (i) lower selling prices of Mogas and Diesel in the Retail segment (ii) higher OPEX in Retail due to its marketing activities and (ii) weaker Diesel gross margin in the commercial segment in line with lower industry demand (E&P for upstream & fishery segment).

• QoQ, core net profit surged by 23.8% in 2Q16, which is in line with sequential volume improvement in both Retail and Commercial segments and increase in average selling prices by 5% due to oil prices movements. We have excluded a oneoff impairment incurred in the quarter (RM89.9m) on subsidy receivables.

• In 6M16, core net profit nudged upwards by 2.5% to RM491.1m despite plunge in revenue caused by lower average selling prices for its products mainly underpinned by (i) lower finance cost (-40.9% YoY) due to lower debt level and (ii) marginally higher sales volume YoY in the period under review (+2%). This is being partially offset by higher depreciation and increased advertising and promotion activities for its Retail segment.

• Retail will further expand its availability of Euro 5 Diesel at selected stations in 2H16, which could help to improve its Retail Diesel volume slightly.

• Diesel continues to be a drag for its Commercial segment due to weak industry demand moving forward. The group will continue to improve its margins in targeted products and market segments, leveraging on the public and private sector investment on infrastructure and construction projects.

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 maintained at RM23.28 based on unchanged 26x FY16 P/E. Lack of immediate catalyst of the stock renders the stock unappealing at the moment.

Source: Hong Leong Investment Bank Research - 16 Aug 2016