Petronas Dagangan’s (PetDag) retail and commercial sales volumes grew by 8% and 1% yoy respectively in 1Q19. In yesterday’s analyst briefing, management guided for lower capital spending, delaying their asset refreshments plan. The big positive in its recently concluded results is the 62% jump in its cash pile. Overall, results were in line. Maintain HOLD and unchanged target price of RM26.20.

Retail Volume Was 8% Higher

PetDag’s 1Q19 retail volume grew 8% yoy, attributed to an improvement in station productivity following the reopening of stations, coupled with the launch of its new Primax 95 product. The recent increase in dealer’s commissions also allows better cash management at the operating level and hence, more stocking up of inventories. We have also seen a shift from commercial to retail diesel purchases with retail diesel prices being more attractive.

Overall, Commercial Volume Was Up 1%

1Q19 commercial volume was up a marginal 1% yoy, which saw demand increased for Jet-A1 and new contracts secured, but partly offset by a loss in an airline contract customer. LPG volume fell 3% yoy, impacted by the implementation of the smoking ban which caused a slowdown in its eateries operations, resulting in a lower demand for LPG. Lubricant volume slumped 22% yoy, affected by an increase in market competition.

Cash Pile Jumped; Capex to be Reduced Moving Forward

As of March 2019, PetDag’s cash position jumped 62% to RM3.5bn compared to Dec-18. The substantial increase was due to 2 quarters of petrol subsidy collection from the government. In addition, PetDag has 1 year of GST refunds of RM200m outstanding from the government, out of which RM20m had been paid in 1Q19 with the remaining expected to be received over the rest of 2019. PetDag has decided to lower its initial capex plan in 2019 by delaying its assets refresh initiative due to the difficult market environment. In the latest quarterly announcement, proposed capex spending disclosed was RM538m vs our current RM450m capex estimate. We maintain our already 15% lower forecast for now.

Maintain HOLD

We maintain our DCF-based 12-month target price at RM26.20. Management highlighted that industry demand is seeing a contraction, further evidenced by their latest decision to reduce capex expansion. This is in line with our view, as we do not see any catalyst in terms of retail volume growth. Maintain HOLD.

Source: Affin Hwang Research - 30 May 2019