• PETD reported a meagre 6M20 profit of RM3.5m, which missed our forecast. Operationally, we had earlier underestimated the quantum of decline for both sales volume and ASP
• Slashed our 2020 EPS by 58% to reflect a larger operational volume decline and less favourable MOPS recovery. Cut our full year DPS from 47sen to 20sen (6M20 payout: 10sen). Also cut 2021 EPS by 30%
• Keeping our Sell rating but raised our DCF derived target price to RM18.05 after adjusting our WACC

Result Miss

2Q20 core net profit of RM3.5m (-70% qoq, -98% yoy), brought 6M20 profit to RM15m (-97% yoy). This missed our earlier forecasts largely due to a sharper-than-expected fall in sales volume and average selling prices (ASP). We had also previously estimated a more favourable MOPS price recovery. Operationally, retail revenue declined 50% yoy suffering from falling sales volume (-32% yoy) and a 30% decline in ASPs. Meanwhile, commercial revenue (45% of 6M20 revenue) slumped by a more drastic 68% as a result of travel restriction bans. Both volume and ASPs fell a sharp 47% and 44%, respectively. Despite the challenging quarter, PETD managed to sustain its cash position at RM2.4bn, relatively flat qoq.

Slash Our Earnings Forecast

We slash our 2020 EPS by 58% yoy after factoring in a more drastic sales volume and ASP decline, coupled with slashing our earlier margins. We also cut our 2020 DPS from 47sen to 20sen, implying a 81% payout. In tandem, with our 2021 EPS cut of 30%, we also cut our DPS to 44sen (from 66sen previously).

Reiterate Sell

We reiterate our Sell rating but raise our target price to RM18.05 (from RM16.90) after adjusting for a lower beta in deriving our WACC assumption, post earnings cut. Key upside risks: 1) recovery in airline sales volume as grounded flights resume operations, and 2) sharp rebound in global oil prices leading to recognition of inventory lagged gain.

Source: Affin Hwang Research - 26 Aug 2020