1Q20 core net profit of RM12.7m (-90.3% QoQ, -95.3% YoY) accounted for 1.5%/1.8% of our/consensus full year estimates, the results are deemed to be below expectations. The deviations namely stems from (i) lower volumes and (ii) lower ASP’s from the MCO and travel bans due to Covid 19 for the former, and the sharp decline in MOPS for the latter. We adjust our earnings downwards by 39%-19% for FY20-21 as we account for softer volumes and ASP’s. Post earnings adjustment, we downgrade our call to a SELL from a HOLD with a lower TP of RM15.80 (from RM20.31) as we roll our valuation to Mid-CY21 (from FY20) earnings pegged to an unchanged P/E multiple of 24x.

Below expectations. 1Q20 core net profit of RM12.7m (-90.3% QoQ, -95.3% YoY) accounted for 1.5%/1.8% of our/consensus FY20 estimates, the results are below expectations. In deriving core earnings, we adjusted for EI’s amounting to RM42m (consisting of RM36.3m in inventory write downs at net realisable value and (ii) impairment on trade receivables of RM5.8m). The deviations namely stems from (i) lower volumes and (ii) lower ASP’s from both commercial and retail segment arising from the MCO and travel bans due to Covid 19 for the former, and the sharp decline in MOPS for the latter.

Dividends. Declared first interim dividend of 5 sen/share (vs. 15 sen/share in 1Q19) (ex-date: 03 June; payment date: 17 June).

QoQ: Revenue declined by 15.9% QoQ on due to lower ASP’s and to a lesser extent lower volumes, arising from the implementation of MCO towards the tail end of the quarter and lower MOPS price trend arising from the oil price war. Subsequently, core net profit declined by 90.3% QoQ from RM131.0m to RM12.7m.

YoY: Revenue declined 7.5% YoY on lower volumes (Retail: -5%; Commercial: -4%) and lower ASP’s (Retail: -2%; Commercial: -5%) due to the same above mentioned factors. Consequently, core net profit deteriorated by 95.3% YoY largely attributable to decline in MOPS prices trend YoY and to a lesser extent the volume impact which only accounted for c. 2 weeks in 1Q20.

Outlook. We can expect volume growth in FY20 to be in negative territory due to the impact of the MCO, whilst ASP’s will remain lacklustre on the back of lower MOPS price trend YoY. We do expect 2Q20 to fair worst than 1Q20 due to the full quarter being impacted by the full volume effect of the MCO. 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. SETEL which offers e-payment solutions is also anticipated to provide better fuelling and purchasing experiences at the petrol stations; however we continue to expect margins to be affected by customer acquisition/A&P costs relating to this venture.

Forecast. We adjust our earnings downwards by 38%-19% for FY20/FY21 as we account for the impact of the MCO on volumes and lower ASP’s due to the oversupply the oil markets. We introduce our FY22 numbers.

Downgrade to SELL, TP: RM15.80. Post earnings adjustment, we downgrade our call to a SELL from a Hold with a lower TP of RM15.80 (from RM20.31) as we roll our valuation to Mid-CY21 (from FY20) earnings pegged to an unchanged P/E multiple of 24x.

Source: Hong Leong Investment Bank Research - 25 May 2020