Period

1Q15

Actual vs. Expectations

1Q15 came in within our expectations with net profit of RM205.8m, the strongest since 3Q13, which made up 25% of our FY15 estimates and 29% of market consensus.

The unexpectedly strong results were mainly attributable to the swift recovery of crude oil prices, which bottomed in mid-Jan and subsequently led to a hike in petrol price in March.

Dividends

12.0 sen NDPS was declared in 1Q15 (ex-date: 25 May; payment date: 25 Jun), which is the same as 1Q14.

Key Results Highlights

Despite revenue contracting 18% QoQ, 1Q15 net profit made a strong rebound to RM205.8m from RM0.4m in 4Q14. The strong set of 1Q15 results were mainly driven by: (i) strong turnaround of operating profit of RM137.4m from operating loss of RM78.6m in the Retail segment as Mean of Platss Singapore (MOPS) rebounded in mid-Jan as compared to a sharp decline in 4Q14, and (ii) a lower opex of RM100.1m as there were higher repair & maintenance activities at petrol stations and terminals, higher manpower and A&P costs in 4Q14. The decline in topline was due to a 19% drop in ASP.

1Q15 net profit jumped 33% YoY from RM155.1m in 1Q14 although revenue contracted 26% over the year. The improved results were mainly due to lower opex of RM64.8m; this is especially so for the Commercial segment. Overall, Retail segment saw its sales volume and ASP for diesel falling 32% and 7%, respectively, while the commercial segment posted 2% and 32% decline in sales volume and ASP, respectively. This was in line with the plunge in MOPS prices which led to a 22% ASP drop at the group level.

Outlook

While 1Q15 results were surprisingly strong, we should pay attention to the crude oil price movement for the remainder of this month, which will set the selling price for June, and next month. The unexpected absence of a hike in petrol price in May will not augur well for PETDAG as the average MOPS prices in April may likely be higher than March, thus the input cost in May could be higher than the selling price.

However, the no change in petrol price this month could be one-off event, likely due to the two by-elections early of the month. With the steadily recovering oil prices, the bad performance in 2H14 may not reoccur. In fact, it could get better. Changes To

Forecasts

No changes to our FY15-16E earnings.

Rating

Upgrade to MARKET PERFORM from UNDERPERFORM

Valuation

We roll-over our valuation base-year to CY16 from CY15 while upgrading the targeted PER to 25.5x (+0.5 SD 10- year mean) from 19.5x (a 50% premium to the sector valuation of 13x)

As such, our new target price is now RM21.60/share from RM15.93/share. The upgrade in PER is on premised of recovery of oil price, which will benefit downstream players, like PETDAG, immediately.

Risks to Our Call

Sudden surge/plunge in business volume and MOPS.

Source: Kenanga Research - 12 May 2015