Petdag’s 1HFY18 core net profit of RM519m came in within consensus estimates but was above our expectations due to higher than expected ASPs. Core net profit improved by 6% in 1H18 thanks to higher retail segment (+17%; better pump prices led) and marginal improvement in commercial segment (+1%; strong ASPs and sales volume). Increase FY18/19/20 earnings by 6%/10%/10% after imputing higher ASPs assumptions. Maintain HOLD rating with higher TP of RM25.27.

Results above our expectations. 1H18 core net profit of RM519.3m (+6% YoY) came above our expectations at 57% of our FY18 estimates but within consensus expectations, accounting for 51% of consensus number. The positive deviation is largely stemmed from higher than expected ASPs for both retail and commercial segments.

Dividends. Declared second interim dividend of 16 sen/share (ex-date: 4 Sep; payment date: 19 Sep), as expected, (vs. 14 sen in 2Q17), bringing its YTD DPS to 29 sen.

YoY: Core net profit increased by 32% to RM308m mainly due to (i) stronger contribution from retail segment (+57% YoY; higher average selling prices, lower product & freight cost) and (ii) commercial segment (+3% YoY; higher average selling prices) despite sales volume from both segments declined by 1% YoY.

QoQ: Core net profit also improved by 46% mainly due to (i) higher average selling prices (+4% QoQ), (ii) stronger retail sales volume (+3% QoQ) and (iii) higher other income including insurance proceeds claim received masking commercial sales volume (-5% QoQ) and higher operating expenditure resulting from increased advertising and promotion expenses.

YTD: In tandem with revenue improvement of 7% YoY, 1H18 core net profit increased by 6% to RM519.3m largely attributable to stronger retail segment (+17%) led by better average pump prices (+3%) overwhelming weaker volume (-2%). Note that commercial segment also recorded marginal improvement (+1%) in 1H18 driven by both higher selling prices (+10%) and sales volume (+4%) offsetting higher sales marketing 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. Demand for fuel is expected to grow on the back of higher car sales and stable fuel prices.

Forecast. Increased FY18/19/20 earnings by 6%/10%/11% respectively after imputing higher average selling price assumptions for both commercial and retail segments.

Maintain HOLD with higher TP: RM25.27. Maintained HOLD with higher TP of RM25.27 (from RM23.03) after earnings forecast adjustment peg to unchanged 24x FY19 PER.

Source: Hong Leong Investment Bank Research - 21 Aug 2018