Period  4Q14/FY14

Actual vs. Expectations  FY14 net profit of RM501.6m, which plunged 38% YoY, was 25% and 28% below house and street estimates, respectively.

 The dismal set of results was mainly due to the sharp decline in Mean of Platts Singapore (MOPS) prices in 4Q14, which was in tandem with the plunge in crude oil prices. This resulted in a higher product cost of RM117.3m in 4Q14 compared to 3Q14.

Dividends  Despite a weaker set of result, it declared a special NDPS of 22.0 sen in 4Q14 (ex-date: 03 Mar; payment date: 27 Mar), bringing full-year FY14 NDPS to 60.0 sen vs. our assumption of 46.9 sen.

Key Results Highlights  4Q14 net profit plunged to RM0.4m from RM160.4m in 3Q14 while revenue dipped 9% over the quarter. The sharp decline in earnings was mainly driven by: (i) the plunge in MOPS, which resulted in RM78.6m operating loss in the Retail segment from RM98.1m operating profit, and (ii) a higher opex of RM55.8m arising from repair and maintenance at petrol stations and terminals as well as higher IT expenses. The decline in topline was attributable to a 9% and 1% drop in sales volume and ASP, respectively.

 YoY, the 4Q14 net income contracted from RM151.3m in 4Q13 on the back of 11% decline in revenue, as the Retail segment incurred additional RM188.6m product cost on the fall of MOPS. The 11% contraction in revenue was led by 8% and 3% decline in sales volume and ASP, respectively. This was especially so for the Commercial segment which saw the turnover contracted by 20% over the year.

 YTD, topline was flattish at RM32.34b in FY14 while net profit plunged 38% to RM501.6m from RM811.8m. This was driven by the higher: (i) product cost by RM278.9m arising from the plunge in MOPS, and (ii) opex by RM83.8m for manpower, IT expenses and depreciation. Overall, the sales volume dipped by 4% in FY14 which was offset by the increase of ASP by 4%.

Outlook  With crude oil price remains depressed and is now below the level in 4Q14, the upcoming 1Q15 result will be another tough quarter. In addition, 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 FY15-FY16E earnings for now, pending an analysts’ briefing to be held later this morning.

Rating Maintain UNDERPERFORM

Valuation  We maintain our price target of RM15.93/share for now, which is based on CY15 19.5x PER or a 50% premium to the sector valuation of 13x.

Risks to Our Call  Sudden surge in business volume and MOPS. 

Source: Kenanga