2Q21 core PATAMI of RM81.5m (-55.8% QoQ, +1909% YoY) and 1H21 core PATAMI of RM266m (+1489% YoY) came in below ours and consensus’ expectations, accounting for 43% and 40% of forecasts due to higher Covid-19 cases, which ultimately led to stricter lockdown measures. We expect 3Q21 to be its worst quarter for FY21 but the Company should see a sharper recovery in 4Q21 as vaccination rates rise and the economy continues to open up. Maintain HOLD at unchanged TP of RM18.55 as we roll forward our valuations to FY22. Our TP is based on 28x (from 30x) PE on FY22 EPS. We believe that the stock is fairly valued at this juncture.

Below expectations. 2Q21 core PATAMI of RM81.5m (-55.8% QoQ, +1909% YoY) and 1H21 core PATAMI of RM266m (+1489% YoY) was below ours and consensus’ expectations, accounting for 43% and 40% of forecasts respectively due to the rise in Covid-19 cases which impeded travel. 1H21 core PATAMI was arrived at after adjusting for -RM7.5m EI’s mainly comprising of (i) net gain on disposal of PPE: -RM2.1m, (ii) write back of impairment loss on receivables: -RM2.7m and (iii) reversal of write down on inventories: -RM1.6m.

Dividend. DPS of 10 Sen/share Was Declared (Ex-Date: 6 Sep 2021; SPLY: 5 Sen/share).

QoQ: Core profit declined by -55.8% due to lower sales volume (-4%), higher product costs (+39%) and less favourable MOPS price trend.

YoY: Coming off a low base (due to MCO1.0), the significantly better core profit of RM81.5m (+1909%) was attributable to a more favourable MOPS prices trend as well as higher sales volume (+13%).

YTD. Also coming off a low base, core profit improved by 1489% as ASP were 15% higher despite a -6% decline in sales volume.

Outlook. We opine that it will probably get worse before it gets better for PetDag as we expect its sales volumes to drop significantly in 3Q21 as a result of the Phase 1 lockdown measures which are still in place, especially with regards to travel (i.e. no interstate or inter-district movement). However, we believe that the ramp up in vaccination rates nationwide should be able to bring us back to some form of normalcy in 4Q21. We expect 3Q21 to be its weakest quarter due to the lockdown measures imposed.

Forecast. We cut earnings by -35.2/-23.0/-22.8% for FY21-23f to factor in the slower than expected recovery from the Covid-19 pandemic and concerns over the Delta variant.

Maintain HOLD, TP: RM18.55 based on 28x (from 30x) FY22EPS. We maintain our HOLD rating at an unchanged TP of RM18.55 as we roll forward our valuations to FY22 based on a slightly lower PE of 28x. While a recovery outlook is on the cards, expected sequential results weakness could impede near term share price performance. Hence, we believe that the stock is fairly valued at this juncture.

Source: Hong Leong Investment Bank Research - 24 Aug 2021