Petronas Dagangan’s (PetDag) 3Q19 result was in line with expectations. Sales volume grew for both the retail and commercial segments but was offset by weaker average selling prices. The non-fuel income saw a better contribution from Mesra. PetDag declared a 16sen interim dividend, similar to 3Q18, bringing its ytd payout to 45sen. We maintain our HOLD call and target price at RM23.95.

Results In-line With Expectations

3Q19 revenue decreased by a marginal 0.2% yoy to RM7.8bn, attributable to lower retail and commercial average selling prices, which fell by 6% and 10% respectively. Nevertheless, the higher number of retail stations and better productivity, coupled with increased diesel and Jet A-1 demand helped drive sales volume higher by 6-8% yoy. PBT was weaker by 19% yoy, impacted mainly by higher product costs, depreciation, advertising and promotion and SETEL system maintenance costs, which offset by higher Mesra income.

Sequential Margins Jump Due to Poor MOPS Prices in 2Q19

Sequentially, revenue grew by 3% qoq primarily driven by 4% qoq stronger sales volume, partly offset by marginally weaker (-1% qoq) average selling prices. PBT jumped 34% qoq, partly due to the sharp drop in MOPS prices in 2Q19, as well as better retail and commercial volumes.

Maintain HOLD

While PetDag’s strategy to improve station productivity has borne fruit, we believe industry sales volume will likely remain lacklustre. In addition, more clarity is needed for its strategy to build up the non-fuel income to 30% of total retail profit. We reiterate our HOLD rating with an unchanged DCF-based target price at RM23.95.

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, and easing global geopolitical tensions.

Source: Affin Hwang Research - 25 Nov 2019