Period

2Q15/1H15

Actual vs. Expectations

2Q15 results beat expectations with 1H15 net profit of RM479.0m, accounting for 59% of our full-year FY15 estimates and 66% that of market consensus.

The stronger-than-expected results were mainly attributable to higher margins, which were due to favourable timing differences arising from increasing Mean of Plats Singapore (MOPS) prices during the quarter.

Dividends

14.0 sen NDPS was declared in 2Q15 (ex-date: 20 Aug; payment date: 22 Sep), totalling YTD 1H15 NDPS to 26.0 sen which is the same as 1H14.

Key Results Highlights

2Q15 net profit surged 33% QoQ to RM273.2m from RM205.8m in 1Q15, on the back of 6% hike in revenue. The strong earnings growth was attributable to higher margins mentioned above. The 6% increase in topline was led by a 5% hike in ASP with 2% increase in sales volume. Segmentalwise, Retail segment saw its operating profit soaring 51% to RM208.1m as a result of 7% rise in revenue due to higher business volume. Commercial segment posted EBIT, which grew 12% to RM159.5m as revenue rose 6%.

Despite revenue falling 22% YoY, 2Q15 net profit jumped 47% from RM185.6m in 2Q14, thanks to a lower opex by RM42.2m and improved gross margins for both Retail and Commercial segments. The decline in opex was attributed to a lower bonus provision, lower A&P expenses coupled with other cost optimisation initiatives. With the plunge in MOPS prices since Jun 2014, ASP fell 17% YoY while sales volume dropped 6% led revenue lower. Retail segment reported higher gross profit by RM15.4m, mainly due to LPG arising from the impact of Automatic Pricing Mechanism revision, which took effect in Jun 2015 while gross margin of Commercial segment improved on contributions from Bitumen and Diesel.

Outlook

With the strong 1H15 results, FY15 earnings are likely to normalise to pre-2014 periods. In addition, the current movement of crude oil prices are fairly stable as opposed to sharp decline in short period of time in 2H14. This could reduce the risk of earnings shock that happened in 2H14. Changes To

Forecasts

Following the improved profit margins in 1H15, we upgrade both FY15-16E earnings by 6% on higher margin assumption.

Rating

Maintain MARKET PERFORM

Valuation

With unchanged targeted PER to 25.5x (+0.5 SD 10-year mean) on CY16 earnings, our new price target is now RM22.15/share from RM21.60/share.

Risks to Our Call

Sudden surge/plunge in business volume and MOPS.

Source: Kenanga Research - 7 Aug 2015