Highlights

• We attended the analyst briefing on PetDag 2Q17 results, walking away feeling neutral.
• YoY: Overall volume was down by 5% in 2Q17 mainly due to (i) lower Retail volume (-5%) in line with general industry decline and (ii) lower Commercial volume (-6%) mainly caused by weakness in LPG and lube volume due to entry of new competitors. Partially offsetting the general decline in volume was the improvement seen for aviation sub-segment within the Commercial division due to commencement of new contracts with several airlines.
• QoQ: Volume improved by 3% largely driven by (i) 3% growth in Retail volume after suspension of operations of 21 stations for maintenance in 1Q17 and (ii) 4% improvement in Commercial division underpinned by growth in diesel and aviation sales. This was being partially offset by weaker LPG and lube volume impacted by stiffer competition.
• As at 2Q17, the group was still significantly behind its CAPEX target of 2017 (RM406m budget approved) with only RM12.6m spent YTD. Allocated budget was mainly for upgrading of existing petrol stations (in Klang Valley in particular), consisting of inclusion of EV charging facilities and enhancement of Mesra outlets in petrol stations for better customer experience.
• Outlook for the group remains muted in the medium term in our opinion. Main volume contributor - motor gasoline is expected to experience negative growth in 2017 due to subdued consumer sentiment and weak petrol consumption due to improvement in public transportation offering post MRT commenced resulting in lesser vehicles on the road.
• The only bright spot for the business is the Aviation business whereby new contracts were secured while operating margins are more favourable.

Forecasts

• Unchanged.

Risks

• Fluctuation in oil price.

Rating

HOLD ↔

• While the group’s balance sheet remains robust, no near term catalysts are present while volume growth outlook remains muted.

Valuation

• We maintain TP at RM24.64 based on unchanged 24x FY18 PER.

Source: Hong Leong Investment Bank Research - 23 Aug 2017