Petronas Dagangan; Fully Valued; RM27.18
Price Target: RM19.70; PETD MK

Petronas Dagangan Bhd (PDB)’s stronger turnover in 1H13 of RM15.5b (+8.4% y-o-y) was largely driven by higher overall sales volume growth of 11.7% to 8.0b litres. This, in turn, was chiefly underpinned by:

(a) retail sales volume of 3.6b litres (+5.1% y-o-y) lifted by stronger Mogas sales as volume throughput per petrol station rose to 588,000 litres per month (vs 577,000 litres per month in 1H12) and incremental contributions from the opening of 20 new stations over the last one to two years; and

(b) commercial sales volume was up 15.6% y-o-y to 3.6b litres in 1H13 on the back of higher jet fuel and fuel oil demand. This comes as PDB continues to thrive from increased airline activity from mainstay customers AirAsia and MAS, and also from newly secured customers AACO and Air France. In the power sector, there were additional off-takes of fuel oil from TNB.

Meanwhile, PDB said it has fully utilised the remaining of its Section 108 tax credit after declaring a second interim gross DPS of 16.3 sen less tax of 25% in 2Q13. Going forward, the company will be paying dividends on a single-tier basis (already started with an interim single-tier DPS of 1.2 sen in 2Q13).

In terms of dividend expectations, PDB hinted that it intends to maintain a minimum payout ratio of 50%. In the first half of FY13, PDB has announced YTD net DPS of 26 sen, translating to a payout of 60%. For the full-year, we have assumed a net DPS of 75 sen, which implies a higher payout ratio of 74% (as we expect a stronger 2H13 earnings due to margins recovery). There is also a possibility of special dividend payments going forward given the Group’s growing cash balance of RM1.1b (or 106 sen per share) and outstanding subsidy claims from the government amounting to RM1.8b (or 187 sen per share) as of endJun.

We maintain our Fully Valued call with TP of RM19.70 based on 18x FY14 PE (at 1SD above its mean). While we like PDB for its resilient businesses, the stock remains expensive trading at 25x FY14F EPS with unattractive FY13F net dividend yield of 2.8% at the current price level.

Source: HwangDBS Research - 23 Aug 2013