Results

• Within: 2Q17 core net profit came in at RM253.8m, bringing 1H17 core net profit to RM485.4m, accounting for 49.3% of HLIB and 51% of consensus.

Deviations

• None.

Dividends

• Declared an interim dividend of 14 sen/share, bringing 1H17 total DPS to 28 sen.

Highlights

• YoY: Core net profit (excluding discontinued operations) was weaker by 3.6% mainly dragged by drop in overall sales volume and increase in OPEX on higher professional service cost and higher transportation cost.
• QoQ: Core earnings declined by 8.8% due to narrower operating margins of Retail segment on unfavourable selling price trend caused by lower MOPS prices despite the slight improvement in volume.
• 1H17: PATAMI registered 5.6% growth mainly due to (i) improvement in operation margin of Commercial segment driven by diesel and aviation fuel sales and (ii) lower finance cost.
• Volume growth outlook for Retail segment (especially gasoline sales) remains muted as demand for car fuel could moderate due to recent commencement of MRT facility which encourages public commuting.
• Commercial segment volume outlook is also subdued as economic growth is increasingly driven by services while industrial growth is expected to be steady.
• Cost optimisation remains the main focus of the group so that it aims to operate in a leaner condition in order to ride through difficult times in the economy.

Forecasts

• Maintained.

Risks

• Further weakness in consumer sentiment.
• Volatility of MOPS pricing which might affect group’s product gross margins.

Rating

HOLD ↔

• While the company’s balance sheet remains solid, no near term catalysts are present while volume growth outlook remains muted in the longer term.

Valuation

• We lower our TP to RM24.64 from RM26.70 as we now peg to a lower FY18 PER of 24x (from 26x previously) to account for weaker long-term volume growth outlook.

Source: Hong Leong Investment Bank Research - 22 Aug 2017