3Q19 core net profit of RM248.7m (+42.4% QoQ, -12.9% YoY) brings 9M19’s total core net profit to RM694.4m (-14% YoY). At 76%/73% of our/consensus full year estimates, the results are deemed to be within expectations. Maintain our HOLD call and TP of RM23.01 based on FY20 earnings pegged to unchanged P/E multiple of 24x.

Within expectations. 3Q19 core net profit of RM248.7m (+42.4% QoQ, -12.9% YoY) brings 9M19’s total core net profit to RM694.4m (-14% YoY). At 76%/73% of our/consensus full year estimates, the results are deemed to be within expectations.

Dividends. Declared third dividend of 16 sen/share (ex-date: 6 Dec; payment date: 20 Dec), bringing 9M19 DPS to 45 sen/share (unchanged vs 9M18).

QoQ: Revenue improved by 3% QoQ on higher sales volumes (+4% QoQ) offset by a decrease in ASP (-1% QoQ). Core net profit improved by 42.4% QoQ to RM248.7m on better margins from both retail (+1.3ppts) and commercial segments (0.5 ppts) QoQ.

YoY: Core net profit also fell by 12.9% YoY largely attributable to weaker contribution from the retail segment segments as a consequence of decreased MOPS prices trend, higher advertising and promotion expenses as well as higher depreciation charge (+38% YoY) following the capitalisation of its “SETEL” application.

YTD: 9M19 core earnings dropped 14% to RM694.4m largely attributable to weaker retail segment due to the abovementioned factors despite higher sales volume (+6%) dragged by a decline in ASPs (-4%) and higher system maintenance costs. This was marginally offset by slightly better commercial segment on better volume (+6%) attributable to Jet A1 sales and higher demand for diesel from the upstream sector.

Outlook. Both retail and commercial sales volume continue to chart positive YoY growth of 6% and 8% respectively in 3Q19 (vs +7% and +9% in 2Q19). Cumulatively, retail sales volume growth in 9M19 of 6% was mainly driven by higher number of stations in operations and introduction of the new Petronas Primax 95 with Pro-Drive. In view of management’s long term goal of growing non-fuel income to 30% of the total revenue, we can expect further strategic partnerships with popular consumer brands to attract a multitude of consumer segments in an effort to grow its same stores sales growth. 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; however we can expect margins to be affected by customer acquisition costs relating to this venture.

Forecast. Unchanged as the results are within expectations.

Maintain HOLD and TP: RM23.01. Maintain our HOLD call and TP of RM23.01 based on FY20 earnings pegged to unchanged P/E multiple of 24x.

Source: Hong Leong Investment Bank Research - 2 Dec 2019