Highlights

• Following are the salient points from analyst briefing yesterday.

• The one-off provision on subsidy receivables worth RM89.9m is due to the claimable from the government in 2012-2013 when the government liberalised diesel prices which affected the outstanding stock piles.

• The management expects low risk of such provision on receivables from now onwards as there are no longer receivables of this nature on its books.

• LPG gross profit improved YoY in 2Q16 despite 1% drop in volume due to cost optimisation initiatives by the group. Lubricant volume dropped by 9% YoY while its gross profit was up by 60% YoY due to stronger OEM business which fetched better margin.

• In addition to its Johor retail outlets, the group is also looking to offer Diesel Euro 5 product in Klang Valley. Currently, 6 outlets are offering Euro 5 and it is expected to rise to 10 outlets by end of this year.

• The group has also sold its Vietnamese operations, predominantly a LPG bottling business to Total, emphasizing the group’s focus on its domestic business.

• The group still has exposure in Thailand and Philippines. While these exposures are currently profitable, the businesses will also be reviewed to gauge t he group’s growth potential in those markets and focus would be shifted to places with higher potential.

• All in, we beli eve the group’s sales volume growth would continue to be slow amid still weak consumer sentiment. However, we take comfort in the company’s strategy to cap inventory days to 4 days (in cont rast to 9-10 days before 2015) to reduce volatility in its earnings caused by vagaries in the oil prices.

Forecasts

• Unchanged.

Catalysts

• Oil price stability which will provide margin visibility.

• Higher dividend payout.

• Continued cost rationalisation

Risks

• Fluctuation in oil price.

Valuation

We maintain our HOLD call with unchanged target price of RM23.28 based on unchanged 26x FY16 P/E. Current growth outlook appears to be insufficient to justify further valuation upgrade.

Source: Hong Leong Investment Bank Research - 17 Aug 2016