Highlights

• FY17: Overall volume reduced by 1% in FY17. This was mainly due to 5% lower in retail volume attributed to market de-growth, higher prices impacting consumer demand, shifting of diesel customers from Retail Segment to Commercial Segment as well as temporary station closures following heightened upgrading and improvement activities. Partially offsetting the retail volume slowdown was the 3% increase in commercial volume due to effective sales strategy as well as increased sales from bulk LPG.

• Significant slowdown in FY17 capex was due to management’s intention to spend with care amid slowing retail business amid subdued car sales and tepid demand for gasoline.

• Prospect: Going forward we understand that capex for the group will normalize back into the range of RM300m- 400m level. Most of the capex budgeted for FY18 will focus on boasting retail volume. This is in contrast with capex spent in FY17 that was mainly for refurbishment of existing petrol stations which would not bring in significant accretive sales to the group.

• We understand that 3 new Mesra stations were added in FY17 and the group is targeting to open 10 new Mesra stations in FY18.

• Commercial segment will continue to experience higher growth thanks to the group’s focus on higher value Aviation and Diesel segment. The group is focusing on bringing in more clients especially smaller airlines in Aviation segment.

Forecasts

• Unchanged.

Risks

• Fluctuation in oil price.

• Weak demand of gasoline product.

Rating

HOLD ↔

• Positive impact of the improvement in product margin has been reflected and normalization of margin in 2018 and muted outlook for gasoline volume has made its long term prospects less appealing.

Valuation

• Maintain HOLD with unchanged TP of RM24.64 pegged to 24x FY18 PER.

Source: Hong Leong Investment Bank Research - 28 Feb 2018