Results

• Above : 3Q17 core net profit came in at RM330.5m, bringing 9M17 core net profit to RM819.6m, accounting for 83% of HLIB and 86% of consensus.

Deviations

• Better than expected product margins.

Dividends

• Declared an interim dividend of 20 sen/share, bringing 9M17 total DPS to 48sen.

Highlights

• YoY : Core net profit increased by 41.7% due to improvement in product selling volume and higher gasoline margins driven by favourable movement in MOPS pricing. This was being partially offset by higher transportation cost for the commercial segment.

• QoQ: Earnings surged 41.4% on the back of higher sales volume and expansion in product margins due to more favourable MOPS pricing movement.

• 9M17: PATAMI registered 18.4% growth mainly underpinned by improved margins of gasoline products for the retail segment and stronger margins from the aviation and diesel products in the commercial segment.

• Volume growth outlook for the retail segment (especially gasoline sales) remains muted as demand for car fuel could be dragged down by recent commencement of MRT facility which encourages public commuting.

• Commercial segment volume is expected to improve in 2018 given that the group now focuses on higher margin products with higher value add.

• Superior margins is likely sustainable in 4Q17 due to positive movement in oil prices (leading to higher MOPS pricing) but we expect this trend to subside in 2018 thus leading to reduction of product margins in 2018.

Forecasts

• FY17E earnings forecast are raised by 15% to account for higher product margins. FY18/19F earnings are held constant.

Risks

• Further weakness in consumer sentiment.

• Volatility of MOPS pricing which might affect group’s product gross margins.

Rating

• BUY

• Upgrade to BUY given recent share price retracement.

• Recent sell down is unjustifiable given that the group is still enjoying favorable product margins. Commercial segment seemed to have bottomed and would improve in the coming years while retail remains stable.

Valuation

• TP is maintained at RM24.64 pegged to 24x FY18 PER.

Source: Hong Leong Investment Bank Research - 13 Nov 2017