1Q19 core net profit of RM270.9m (+28% YoY) came within our/consensus expectations at 27%/27% of full year estimates. Both retail and commercial sales volume demonstrated positive YoY growth of 6% and 1% respectively in 1Q19 (vs +0.5% and -1% in FY18). Maintain our earnings estimates and FY21 earnings estimates of RM1.08bn (+6% YoY) are introduced. Maintain HOLD with unchanged TP of RM24.40 peg to unchanged 24x FY19 P/E.

Within expectations. 1Q19 core net profit of RM270.9m (+28% YoY) came within our/consensus expectations at 27%/27% of full year estimates.

Dividends. Declared first interim dividend of 15 sen/share (ex-date: 13 Jun; payment date: 14 Jun), which is higher than 1Q18’s 13 sen/share.

QoQ: Core net profit jumped by 4.4x QoQ to RM270.9m mainly due to stronger margins as a result of improved MOPS prices trend despite revenue fell by 10% dragged by weaker ASPs (-9%) and lower sales volume (-1%).

YoY: Core net profit also improved by 28% largely attributable to stronger retail segment (+36%; improved station productivity and higher number of operating stations) and commercial segment (+22%; better margins and higher volume from Jet A1 and Diesel).

Volume growth. Both retail and commercial sales volume demonstrated positive YoY growth of 6% and 1% respectively in 1Q19 (vs +0.5% and -1% in FY18). Retail sales volume growth in 1Q19 is higher than our projected growth assumption of 2% in FY19. We would like to maintain our growth assumption as we do not discount the possibility of moderation in the coming quarters in view of fierce competition and rising in usage of public transportation and e-hailing services.

Capex guidance. In the previous analyst briefing, management has guided capex for this year to match last year’s RM375m in view of continuous refurbishments and upgrades for Mesra shops as well as expansion of 10-15 new stations. Petdag has incurred RM64m capex in 1Q19 and is deemed within our capex assumption of RM400m this year.

Focusing on non-fuel income. Management’s long term goal of growing non-fuel income to 30% of the total revenue remains intact on the back of its several efforts such as strategic partnership with more brands to attract different consumers and convenience stores upgrade to enhance customer experience. The newly introduced E-wallet, SETEL which offers e-payment solutions is also anticipated to provide better fuelling and purchasing experiences at the petrol stations.

Forecast. Maintain our earnings estimates and FY21 earnings estimates of RM1.08bn (+6% YoY) are introduced assuming 2% retail volume growth and flat commercial sales volume.

Maintain HOLD with lower TP: RM24.40. Maintain HOLD with unchanged TP of RM24.40 peg to unchanged 24x FY19 P/E.

Source: Hong Leong Investment Bank Research - 29 May 2019