2Q20 core PATAMI of RM4.1m (QoQ: -68.0%, YoY: -97.7%) brought 1H20 core PATAMI to RM16.7m (YoY: -96.2%), which is below ours and consensus expectations, accounting for just 3.5% and 3.8% of forecasts, respectively. We maintain our forecasts, TP of RM15.10 and SELL pending today’s analyst briefing.

Below expectations. 2Q20 core PATAMI of RM4.1m (QoQ: -68.0%, YoY: -97.7%) brought 1H20 core PATAMI to RM16.7m (YoY: -96.2%). This is below ours and consensus expectations, accounting for just 3.5% and 3.8% of forecasts respectively. The deviation was due to lower-than-expected sales volumes and ASPs in both retail and commercial segments. 1H20 core PATAMI was arrived at after adjusting for RM42.6m EI’s of inventory write down, impairment of trade receivable and other forex gains/losses.

Dividends. Declared DPS of 5 sen/share was declared, going ex on 9 Sep 2020 (14 sen/share in 2Q19). 1H20: 10 sen/share (1H19: 29 sen/share)

QoQ: Lower sales (-55.3%) was due to lesser sales in retail (-46.2%) and commercial (-65.0%) divisions. Weaker retail sales was due to lower sales volumes of MOGAS and diesel due significantly lesser on-road travel activity from MCO restrictions. Lower commercial sales were due to lower sales volumes, particularly from Jet A1 from significantly lesser commercial air travel in 2Q20. Despite reduction in A&P spending, core PATAMI declined -68.0% in tandem with lower sales.

YoY: Lower sales volumes (-32%) and MOPS derived ASPs (-30%) in retail segment led to retail sales declining -46.2%. Commercial sales declined (-70.4%) due to lower ASPs (-44%) and volumes (-47%), which was due to slow down in commercial client operations, in particular airlines. Overall, lesser sales coupled with fixed cost component of cost structure led to core PATAMI declining -97.7%.

YTD. Despite reduction in A&P spending, sales decline in retail and commercial segments coupled with fixed costs led to core PATAMI declining -96.2% due to similar reasons mentioned above.

Outlook. We understand retail sales volumes of MOGAS and diesel have started to gradually recover in early May in conjunction with relaxation of MCO restrictions. While in the commercial division, closure of non-essential manufacturing and construction businesses have impacted commercial diesel 2Q20. With gradual recovery of these businesses expected, we expect better commercial sales volumes in 2H20. However, we note that demand for Jet A1 fuel continues to be subdued due to restricted global travel rules.

Forecast. Unchanged pending today’s analyst briefing.

Reiterate SELL, TP: RM15.10. Our SELL call and TP of RM15.10 based on PE multiple of 24x (-1SD of 5 year average PE of 28.5x) pegged to mid-FY21 earnings is under review pending today’s analyst briefing.

Source: Hong Leong Investment Bank Research - 26 Aug 2020