Highlights

• In 1Q17, retail volume weakened 6% YoY due to the partial commencement of MRT stations in Klang Valley, weak consumer sentiment and lower petrol pump consumption ahead of implementation of weekly petrol pump pricing (from monthly) in late March 2017.
• Commercial volume has also weakened 3% YoY dragged by the weak commercial diesel volume mainly attributed to further weakness in upstream industry, which was partially offset by stronger aviation fuel volume due to higher number of flights.
• For 2017, Petdag is planning to add 66 vehicle charging facilities on its existing petrol stations to cater for long term demand in electric vehicles. To-date, the group has already added 25 charging stations.
• With regards to pump prices, any petrol station retailer is allowed to give a discount post implementation of weekly petrol pump pricing. However, application needs to be submitted for government approval before implementation.
• In addition, petrol station operators are highly unlikely to engage in price war by sacrificing its own margins as it would lead to vicious cycle of price cutting by competitors and industry margins would deteriorate significantly.
• In the long run, Petdag believes that the deregulation of the product retailing industry is imminent and its main objective is to improve its cost efficiency in order to sustain profit growth.
• The group maintains its target to keep its inventory days at the range of 4-7 days going forward but might extend their inventory during pre-Hari Raya season.

Forecasts

• Unchanged.

Risks

• Fluctuation in oil price.

Rating

HOLD ↔

• While earnings remained resilient due consistent volume growth and sustainable margins, no near term catalysts are present while its improved margins appears to be factored into the share price already.

Valuation

• We maintain our TP at RM26.70 based on unchanged 26x FY18 PER.

Source: Hong Leong Investment Bank Research - 22 May 2017