3Q20 Results Surprise; Upgrade to Buy on Recovery Play

• 9M20 core net profit of RM223m was above our previous full-year estimate, but in line with consensus. Deviation arose from an earlier-than-expected margin improvement
• PETD declared a 3Q interim dividend of 11sen for a total of 21sen as of 9M20, exceeding our previous full-year 20sen DPS assumption. Raising full-year DPS to 28sen (implying an 80% payout)
• Raising EPS forecasts by +41%/+12%/+6%. Upgrade to Buy as we believe PETD will be a recovery play. Raising target price to RM21.50 (from RM18.05) post earnings forecast revisions, and adjusting the WACC

Results Above Expectation on Exceptionally Strong 3Q Recovery

PETD’s 9M20 revenue fell 36% yoy as the nationwide lockdown impacted the retail and commercial segments, with sales volumes declining by 13% and 31% yoy respectively. The plunge in global oil prices amid softer market demand also resulted in weaker average selling prices (ASP) for both retail and commercial, down by 16%-22% yoy. Revenue was in line with our forecast, with positive deviation coming from margins. Overall, the 9M20 core net profit of RM223m exceeded our expectation, accounting for 91% of our previous full-year forecast.

Recovery Off Low Base in 2Q

On a sequential basis, revenue rebounded 65% to RM4,831m, recovering off 2Q’s low base on the back of recovering demand (+34% in sales volume) and ASP (+23%). 3Q revenue highlights a recovery in the operating environment, which was back to ~60% of the average 2019 level. The net cash balance improved by 11% qoq to RM2.4bn.

Upgrade to Buy With Higher 12-month TP of RM21.50

3Q20 margin surprised positively on the back of a sales volume recovery. While we think 4Q could see a weaker quarter on less travelling due to the recent spike in the number of COVID cases, investors should be looking ahead to a sustainable recovery amid positive news flow on vaccines. We expect 2021-22 revenue to recover to 80-90% of the preCOVID level in 2019. Post the earnings forecast revisions and adjusting the WACC, we raise our DCF-based target price to RM21.50 (from RM18.05). Upgrade to Buy.

Key downside risks: 1) delays in publicly available vaccines will affect the volume recovery, in particular for Jet-A1 fuel, and 2) sharp decline in global oil prices leading to recognition of lagged inventory losses

Source: Affin Hwang Research - 18 Nov 2020