Period  3Q14/9M14

Actual vs. Expectations At 67% and 65% of our FY14 full-year estimates and market consensus, respectively, the 9M14 net profit of RM501.1m came in below expectations.

 The weaker-than-expected results were attributed to higher product cost and lower business volume in 3Q14.

Dividends  A 12 sen NDPS was declared in 3Q14, (ex-date: 18 Nov-14; payment date: 05 Dec-14) which is lower than the 17.5 sen paid in 3Q13. This brought YTD 9M14 NDPS to 38 sen compared to 44.1 sen in 9M13.

Key Results Highlights 3Q14 net profit declined 14% QoQ to RM160.4m while revenue dipped 2% over the same period. The dip in revenue was mainly due to lower ASP, which slid by 2% arising from drop in Mean of Platts Singapore (MOPS) prices. The decline in MOPS prices also led to higher product cost by RM48.8m, coupled with lower volume contribution of RM11.1m which attributed to the overall contraction in bottomline. On a positive note, opex was lowered by RM16.7m.

 YoY, the 3Q14 net profit contracted by a bigger percentage of 29% while topline slid 2%. This was mainly driven by weaker Retail segment earnings, which declined 56% or RM122.6m at EBIT level due to higher product cost on unfavourable timing differences of MOPS. However, the Commercial segment reported higher EBIT by RM42.7m or 47% due to better profit margin and lower opex by RM14.6m.

 YTD, despite revenue rising 4%, 9M14 net profit fell 24% from RM660.4m last year. The lower earnings were mainly due to higher product cost as mentioned above as well as higher opex attributable to rising IT cost and staffs cost. This was partly reflected in Retail segment earnings, which saw its EBIT contracting by 35%. Meanwhile, the higher revenue was due to higher ASP by 6%, which was partially offset by lower sales volume of 2%.

Outlook  PETDAG has been facing deteriorating profit margins for the past 2-3 years on higher operating costs and the going remains challenging as there is little room to crimp operating costs. However, business volumes are set to drive its earnings higher, especially from the retail segment 2H14 onwards.

Changes To Forecasts   No changes to our FY14-FY16 forecasts for now, pending an analysts’ briefing to be held later this morning.

Rating Maintain MARKET PERFORM

Valuation  We keep our price target of RM19.64/share for now, which is based on CY15 22.7x PER or a 50% premium to the market valuation.

Risks  Sudden surge or plunge in business volume; a change in Auto Pricing Mechanism.

Source: Kenanga