Petronas Dagangan’s (PetDag) profit met our expectation but missed market consensus estimates. The weaker 2Q19 profit was impacted by inventory lagged loss from lower MOPS price trend, higher depreciation from the development of SETEL app, and advertising and promotion expenses. PetDag declared a 14 sen dividend (vs 16 sen in 2Q18). Maintain our HOLD call with unchanged target price of RM24.60.

Results in Line

2Q19 revenue increased 5% yoy to RM7.6bn as both retail and commercial segments saw sales volume growth of +7%/+9% respectively, as a result of higher petrol stations in operation coupled with higher demand for the Jet-A1 fuel. This was partly offset by a lower retail and commercial average selling price (ASP) by 3% and 4% yoy respectively. Core net profit fell by 37% yoy, adversely affected by an inventory lagged loss as MOPS price declined, resulting in EBITDA margin falling by 2ppts yoy to 4.8%. The result was also dragged down by a higher depreciation charge from SETEL app and higher advertising and promotion expenses.

Sequential Weakness From Lower MOPS Price

Revenue grew by 7% qoq driven by 3% overall sales volume growth and 4% higher in blended ASP. Core net profit declined by 35% qoq mainly impacted by inventory lagged loss, and dragged down by higher depreciation from SETEL app and higher support services costs.

Maintain HOLD

Our current earnings forecast is lower than consensus as we had anticipated this quarter’s weak results. While PetDag’s various strategies to improve station productivity has yielded increased sales volume, the near-term outlook looks unexciting, in particular on the global oil prices front, which will likely see MOPS price remain low. The upcoming news flow will likely be on the targeted fuel subsidy implementation scheduled to be announced in Sept-19. We reiterate our HOLD rating with unchanged DCP-based target price of RM24.60.

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, higher MOPS price, easing global geopolitical tensions.

Source: Affin Hwang Research - 26 Aug 2019