3Q20 core PATAMI of RM208.9m (from RM4.1m in 2Q20, YoY: -14.9%) brought 9M20’s to RM225.6m (YoY: -67.4%). This is below ours but in-line with consensus expectations, accounting for just 53.8% and 70.1% of forecasts respectively. We lower our FY20/21/22 earnings forecasts by 13.2%/ 6.5%/2.4% to account for lower sales volumes going forward due to CMCO restrictions in 4Q20 and continued restrictions on international trave l expected to continue into FY21. After our earnings adjustment, our TP falls from RM19.84 to RM18.55 pegged to an unchanged 26x FY21 EPS (-0.5SD below 5-year mean)

Below expectations. 3Q20 core PATAMI of RM208.9m (from RM4.1m in 2Q20, YoY: -14.9%) brought 9M20’s sum to RM225.6m (YoY: -67.4%). This is below ours but inline with consensus expectations, accounting for 53.8% and 70.1% of forecasts respectively. We deem this below expectations as we expect significantly weaker sales volumes in 4Q20 due to the reimplementation of CMCO restrictions and lesser domestic tourism. 9M20 core PATAMI was arrived at after adjusting for RM38.8m EI’s of inventory write down, impairment of trade receivable and other forex gains/losses.

Dividends. Declared DPS of 11 sen/share was declared, going ex on 1 Dec 2020 (16 sen/share in 3Q19). 9M20: 21 sen/share (1H19: 45 sen/share).

QoQ: Sales recovery (+64.8%) was seen in both retail (+73.2%) and commercial (+50.7%) segments. Overall, rebound in profitability (RM208.9m core PATAMI vs. RM41.m in 2Q20) was due to 34% higher sales volumes due to loosening of MCO rules (more domestic travel activity) and higher selling prices of 23%. Note that overall, average Brent price in 3Q20 was higher by 47.3% QoQ.

YoY: Lower sales volumes (-3%) and MOPS derived ASP (-17%) in tandem with the RMCO led to retail sales declining -19.4%. Commercial sales were lower by -57.1% due to lower sales volumes mainly in jet A1 and diesel. PetDag partially mitigated lower sales with lesser A&P expenditure, resulting in core PATAMI declining -14.9%.

YTD. Due to lower demand, lower sales volumes (Retail: -13%, Commercial: -31%) and ASP (Retail:-16%. Commercial: -22%) resulted in sales falling 36.4%. This was due MCO restrictions earlier this year, lesser aviation activity and overall slowdown in activity. Despite lower A&P spending, fixed component of costs resulted in core PATAMI declining by an even larger quantum than sales (-67.4%).

Outlook. While demand for MOGAS (and to a lesser extent Jet A1) had begun to pick up in since June with the loosening of RMCO rules and increased domestic travel, we expect significantly lesser sales volumes in 4Q20 due to reimplementation of CMCO restrictions. Despite recent positive vaccine news, we expect demand for Jet A1 fuel to be subdued for the foreseeable future given the continued restrictions on global travel.

Forecast. We lower our FY20/21/22 earnings forecasts by 13.2%/6.5%/2.4% to account for lower sales volumes going forward due to CMCO restrictions in 4Q20 and continued restrictions on international travel expected to continue into FY21.

Maintain HOLD, TP: RM18.55. After our earnings adjustment, our TP falls from RM19.84 to RM18.55 pegged to an unchanged 26x FY21 EPS (-0.5SD below 5-year mean)

Source: Hong Leong Investment Bank Research - 18 Nov 2020