News

• PetDag has entered into SPA with Phoenix Petroleum Philippines in relation to the divestment of 100%-owned PEPI and 40%-owned DUTA (both Philippines operations) for a total cash consideration of US$124m.
• Completion of the deal is expected to be in 3Q17. Financial Impact
• While small in size, this is a positive announcement to the group as it will provide upfront cash flow for the group from these assets which have not been generating significant income.
• The implied PBV for the assets is at 2.4x, which we opine the assets are fairly priced.
• Expected disposal gain from the deal is circa RM369.5m (1.5% of group market cap and the 37.5% of annual earnings).
• Cash proceed from the deal is expected to be ploughed into group?s CAPEX allocation for enhancem ent of its existing petrol stations in Malaysia.
• It would not affect our forecast assumptions as we have not factored in any overseas contribution for the group?s business in our model.

Pros/Cons

• The completion of the deal would allow the group to focus on its domestic business, which has been very competitive.
• The announced change to weekly pricing (from monthly) for petrol pump price would not affect the group?s pricing mechanism which adheres to current managed float and Automated Pricing Mechanism system.
• Volume growth outlook would remain muted for 2017 as consumer sentiment remain low while global crude oil prices have risen YoY, causing concerns for slightly higher inflation.

Risks

• Project execution risk.
• Further downturn in oil price.

Forecasts

• Maintained.

Rating

HOLD (↔)

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

Valuation

• TP is maintained at RM26.70 pegged to unchanged 26x FY18 PER

Source: Hong Leong Investment Bank Research - 06 Jul 2017