PetDag’s 9M18 earnings were within expectations at 78% and 76% of our and consensus full-year estimates respectively. Revenue gains were mainly attributed to the increase in MOPS product prices across retail and commercial sales, but adversely affected by an increase in advertising and promotion expenditures. We reiterate our HOLD call and RM29.00 target price, which implies a 27.5x FY19E PER.

Flat Retail Revenue But Commercial Edged Higher

PetDag’s 3Q18 performance was in line with expectations as revenue grew 7% qoq mainly attributable to a 2% higher in ASP coupled with retail and commercial sales volumes growth, which grew 3% and 7% respectively. Nevertheless, core net profit only inched up 2% higher qoq due to the writeoff in PPE as well as an increase in repair and maintenance cost to refurbish its stations.

Lower Earnings Yoy on Higher Cost Incurred

While 3Q18 revenue increased 17% yoy on more favourable MOPS prices and higher retail volume, PetDag’s core net profit declined 14% yoy to RM284m as its margin deteriorated due to a more aggressive marketing strategy that resulted in higher advertising and promotional costs. As a result, EBITDA margin deteriorated by 1.5ppts on the higher operating expenditures.

Maintain HOLD

We make no changes to our earnings forecasts as results were in line with expectations. We maintain our HOLD call with an unchanged DCF-derived target price of RM29.00, which implies a FY19E PER of 27.5x. With the fuel sales volume continuing to remain under pressure, PetDag targets to grow the non-fuel business to 30% of total revenue from 10% currently. Key risks to call: i) entry of more ride-hailing companies, ii) increase in use of public transportation, and iii) more aggressive campaigns and promotions by e-hailing companies.

Source: Affin Hwang Research - 28 Nov 2018