Petdag’s 1QFY18 core net profit of RM211m was below HLIB and consensus estimates. Core net profit decreased 17.2% yoy mainly due to higher product cost in Retail LPG segment and higher operating expenditure. We opine that the announced fixed retail pump prices would be neutral to the company in near term. Reduced FY18-19 forecast by 10.9% and 9.8% respectively after imputing higher operating expenditure assumptions. We maintain our HOLD rating with lower TP of RM23.03.

Results below expectations. 1Q18 core net profit came in below expectations, at RM211.2m, accounting for 20.7% of HLIB and 19.9% of consensus estimates.

Dividends. Declared an interim dividend of 13 sen/share.

YoY: Core net profit decreased 17.2% mainly due to higher product cost in Retail LPG segment and higher operating expenditure following higher salaries, wages and benefit expenses, partially offset by higher revenue from Commercial segment.

QoQ: Core net profit decreased 23.4% mainly due to higher product cost and lower volume in Retail and Commercial segments as well as lower Mesra income, partially negated by lower operating expenditure due to lower advertising and promotion cost.

Fixed pump prices. The announced fixed retail pump prices (from weekly pricing) would be neutral to the company in near term. This is because retail pump prices are supposed to increase under managed float system due to YTD rising MOPS price trend. The reintroduction of fuel subsidy is conducive to retail MOGAS volume under current rising MOPS price trend. However, this positive impact is expected to be offset by higher working capital requirement as the subsidy payments from the government took an average 2-3 months.

Forecast. Reduced FY18-19 forecast by 10.9% and 9.8% respectively after imputing higher operating expenditure assumptions. We introduce our FY20 earnings forecast of RM955.0m.

Maintain HOLD, TP: RM23.03. Maintained HOLD with lower TP of RM23.03 (from RM24.64) after earnings forecast adjustment and roll forward of valuation horizon to FY19. TP is pegged to unchanged 24x FY19 PER.

Source: Hong Leong Investment Bank Research - 21 May 2018