Petronas Dagangan’s (PetDag) 1Q19 profit surged 29% yoy mainly driven by lagged inventory gains, in tandem with the rebound in global oil prices and MOPS prices. Operating cash flow was surprisingly strong in 1Q19, which saw an additional RM1.4bn cash inflow as a result of higher government subsidies collection. A higher 15sen interim dividend was declared (vs. 13sen in 1Q18). We maintain our HOLD call with a revised target price of RM26.20.

1Q19 Results in Line With Expectations

1Q19 profit made up 27% of our and street’s full year estimates, which were in line with forecasts. Despite a flat 1Q19 revenue of RM7.09bn (+0.2% yoy), profit jumped 29% yoy on higher MOPS prices which resulted from positive lagged inventory gains for PetDag. Commercial operating profit also grew 23% yoy as margins improved in tandem with the higher volume from Jet-A1 and diesel.

MOPS Prices Rebounded Strongly Qoq

Retail and commercial revenues fell by 4% and 16% qoq, resulting in an overall 1Q19 revenue declined of 10%, which was mostly affected by the lower ASP. Nevertheless, core profit surged 4-fold to RM271m as MOPS prices recovered, resulting in inventory lagged gains. In our view, we do not expect such volatility to recur in the coming quarters with global oil prices stabilising at near current level.

Maintain HOLD

We did some housekeeping adjustments following the release of the annual report numbers. We roll forward our DCF-based target price to RM26.20 (from RM27.20) also adjusting our earlier working capital assumptions. We reiterate our HOLD rating as we believe that retail sales volume will continue to remain under pressure and PetDag is still in an early high capex cycle to diversify its non-fuel income, which could potentially see a deterioration in cash in the long run. Key downside risks: i) entry of more ride-hailing companies, ii) an increase in the use of public transport, and iii) more aggressive campaigns and promotions by e-hailing companies. Key upside risk: higher sales volume and MOPS price.

Source: Affin Hwang Research - 29 May 2019