Overall volume increased 1% YoY in 1H18 due to growth in commercial segment offsetting 2% decline in retail volume. Management is eyeing to grow its non-fuel income to 30% of total revenue in the long run with several proposals being evaluated at this juncture. As for retail segment, PetDag will expand 8 stations in FY18 and another 15-20 stations next year to boost its market share amidst competitive landscape. With no changes in our estimates, we reiterate HOLD recommendation on the counter with unchanged TP of RM25.27 pegged to 24x FY19 PER.

1H18: Overall volume increased by 1% in 1H18. This was primarily driven by 4% growth in commercial volume contributed by fuel oil and bulk LPG as a consequence of higher sales and marketing efforts. Diesel and sulphur sales also improved on the back of higher demand from major customers. This was partially offset by 2% decline in retail volume due to lower fuel consumption led by higher average pump prices.

QoQ: Overall group sales volume decreased by 1% mainly due to 4% decrease in commercial volume led by lower Jet-A1 sales. This was partially cushioned by better volume from retail segment (+4%) especially from mogas and diesel following stable prices and shifting of diesel customers from commercial to retail.

Eyeing on key new growth area. PetDag is targeting to grow its non-fuel income to contribute 30% of its total revenue (from existing level of <10%) in the long run. Management is currently evaluating several proposals and expects better clarity by earliest end of the year.

Trade receivables build-up: Trade receivables increased by 23% QoQ to RM2.1bn mainly due to higher subsidies owed by government following the announced fixed retail pump prices amidst stronger crude prices. We were guided that PetDag still receives the payment timely every 2-3 months.

Capex guidance. Management has guided capex for this year to be approximately RM300m, including refurbishments and upgrades for Mesras as well as expansion of 8 new stations. The company will open up another 15-20 stations next year to boost its retail sales volume. Meanwhile, digital and technology transformation remains one of the key focus areas and thus a ramp up in capex on digital platform could be expected in the near term.

Forecast. Maintained

Maintain HOLD, TP: RM25.27. Maintained HOLD with unchanged TP of RM25.27. TP is pegged to unchanged 24x FY19 PER.

Source: Hong Leong Investment Bank Research - 23 Aug 2018