Petdag’s 9MFY18 core net profit of RM805m came in within consensus estimates but was above our expectations due to higher than expected ASPs. Core net profit dropped marginally by 2% in 9M18 on higher tax expense (+12%) and weaker commercial segment (-1%) masking stronger retail segment (+4%). Increase FY18-20 earnings by 6% after imputing higher ASPs assumptions. Maintain HOLD rating with higher TP of RM26.70 pegged to unchanged 24x FY19 PER.

Results above our expectations. 9M18 core net profit of RM804.9m (-2% YoY) came above our expectations at 84% of our FY18 estimates but within consensus expectations at 77%. The positive deviation largely stemmed from higher than expected ASPs for both retail and commercial segments.

Dividends. Declared third interim dividend of 16 sen/share (ex-date: 10 Dec; payment date: 26 Dec), as expected, (vs. 20 sen in 3Q17), bringing its YTD DPS to 45 sen.

QoQ: Core net profit dropped by 7% QoQ to RM285.6m mainly due to higher operating expenditure resulting from increased repair and maintenance work for petrol stations and higher tax expense (+18%). This was cushioned by stronger sales volume for both retail (+3%) and commercial segments (+7%) as well as higher ASPs (+2%).

YoY: Core net profit also decreased by 14% largely attributable to (i) weaker retail division (-12%; higher advertising and promotion expenses) and commercial segment (-5%; lower margins led by poorer product mix).

YTD: 9M18 core net profit marginally decreased by 2% from RM819.6m in 9M17 as a consequence of higher tax expense (+12%) and weaker commercial segment (-1%; lower margins led by poorer product mix). This was partially offset by stronger retail segment (+4%) underpinned by better ASPs and improved margins for Mogas and Diesel.

Pending implementation details. In Budget 2019, the government has announced targeted RON95 petrol subsidy of at least RM0.30/ltr for car and motorcycle owners (below 1,500cc and 125cc) up to 100ltr/month and 40ltr/month. Non-subsidised vehicles will have to pay based on the weekly APM scheme, which is expected to commence in 2Q19. We reckon that resumption of weekly APM scheme may not significantly affect the retail volume with the help of this targeted subsidy especially when crude prices have retraced to USD60/bbl level.

Meanwhile, there is also an allocation of RM240m to introduce a RM100 unlimited public transport passes, to kick off initially on the RapidKL rail and bus network on 1 Jan 2019 and RM50 monthly pass available just for RapidKL bus services only. This may encourage higher usage of public transport and hence might negatively affect the retail volume.

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

Maintain HOLD with higher TP: RM26.70. Maintain HOLD with higher TP of RM26.70 (from RM25.27) after earnings forecast adjustment peg to unchanged 24x FY19 PER.

Source: Hong Leong Investment Bank Research - 28 Nov 2018