Highlights

• Following are the salient points from analyst briefing yesterday:-

• Its retail division grew by 1% YoY in 9M16, still a commendable growth as the overall industry’s growth remained tepid.

• The recent incident of NGV tank explosion in Johor petrol station would not have significant financial impact to PETDAG as it is the sole operator for all NGV businesses for Petronas NGV (PNGV), which is in turn the direct subsidiary of Petronas group.

• Currently, 67 stations in Klang Valley, Negeri Sembilan and Johor have suspended their operations to undergo necessary upgrades to ensure they meet higher safety requirements. All CAPEX for such upgrades would be borne by PNGV, outside of PETDAG.

• In 3Q16, operating margins were generally higher YoY due to improvement in margin from both retail and commercial division. Commercial division was lifted by higher profitability of aviation and fuel oil.

• Seasonally, OPEX for the company would increase QoQ in 4Q16 as the company would usually ramp up its maintenance and refurbishment works in the petrol stations when closer to the year end.

• YTD 2016, less petrol stations were opened (2-3 stations). The management indicated that it would not focus on increasing no. of stations moving forward and would focus on repair and petrol station upgrade works in the future to improve customer experience.

• All in, we believe the group’s sales volume growth would continue to be slow amid moderate economic growth and still weak consumer sentiment.

Forecasts

• Unchanged.

Risks

• Fluctuation in oil price.

Rating

HOLD ↔

• Despite resilience in earnings, we do not anticipate significant growth in core profit in 2017 as the group faces headwinds in weak consumer confidence and persistent weakness in commercial diesel segment which is affected by slowdown in O&G upstream industry.

Valuation

• We maintain our HOLD call with unchanged target price of RM23.53 based on unchanged 26x FY17 P/E

Source: Hong Leong Investment Bank Research - 10 Nov 2016