PetDag reported 4Q22 core PATAMI of RM178.9m (-38% QoQ, +11% YoY), bringing FY22 core net profit to RM747.7m (+37% YoY). The results came in within expectations, accounting for 99%/98% of our/consensus full-year forecasts respectively. We think that PetDag will continue to be the beneficiary of the reopening theme and economic recovery with the ease of restrictions on international travel. However, we view that at current levels, the group’s share price have gone past its fundamentals and we believe that the risk-to-reward ratio is not justified as valuations are rich at forward PE multiples of close to 30x. Overall, we maintain our SELL recommendation on PetDag with an unchanged TP of RM19.12 – pegged to a multiple of 25x on FY23f EPS, which is at parity to its 3-year average mean valuations.

Within expectations. PetDag reported a 4Q22 core PATAMI of RM178.9m (-38% QoQ, +11% YoY), bringing FY22 core net profit to RM747.7m (+37% YoY), predominantly adjusted for: (i) RM40.6m impairment loss on receivables; (ii) RM2.7m PPE expensed off; (iii) RM22.2m PPE written off; (iv) RM3.1m write back of impairment of receivables; (v) RM3.9m net gain on disposal of PPE; and (vi) RM87.9m gain on disposal of LPG business. The results came in within expectations, accounting for 99%/98% of our/consensus full-year forecasts respectively.

Dividend. Fourth interim dividend and special dividend totalling to 40.0 sen/share was declared (ex-date: 8 March 2023) in 4Q22. YTD FY22 total dividends stood at 76.0 sen/share, which matched our total dividend forecast of 74.2 sen for the year.

QoQ. Revenue and core net profit were down by 6% and 38% QoQ respectively mainly due to lower ASPs (-6%). Also, we note that the decline in profit margins were attributed to higher opex arising from the increase in repair and maintenance works throughout the quarter.

YoY. Revenue and core net profit were up substantially by 35% and 11% respectively YoY mainly due to: (i) higher ASP (+16%); and (ii) higher sales volume (+ 15%), following higher and more favourable price movement throughout the quarter.

YTD. FY22 revenue and core net profit was up by 63% and 37% YoY respectively mainly due to: (i) higher ASP (+26%); and (ii) higher sales volume (+28%), following higher and more favourable price movement throughout the year.

Outlook. We think that PetDag will continue to be the beneficiary of the reopening theme and economic recovery with the ease of restrictions on international travel. However, we view that at current levels, the group’s share price have gone past its fundamentals and we believe that the risk-to-reward ratio is not justified as valuations are rich at forward PE multiples of close to 30x.

Forecast. Unchanged.

Maintain SELL, unchanged TP of RM19.12. Overall, we maintain our SELL recommendation on PetDag with an unchanged TP of RM19.12 – pegged to a multiple of 25x on FY23f EPS, which is at parity to its 3-year average mean valuation.

Source: Hong Leong Investment Bank Research - 23 Feb 2023