PETDAG reported yet another satisfactory performance in the 2Q17 results with sales volume rebounding 3% sequentially on the back of high traffic volume for school holidays and Hari Raya holidays. Nonetheless, traffic flow is expected to come off in 3Q17 following the high base in the preceding quarter. This is unlikely to be alarming as the stable MOPS price movement should sustain profit margin if not push it higher. It remains as an OUTPERFORM with target price of RM26.70/share.

1H17 matched expectations. At 48%/52% of house/street’s FY17 estimates, 1H17 core earnings of RM492.0m came within expectations. A 2nd interim NDPS of 14.0 sen was declared in 2Q17 (ex-date: 07 Sep; payment date: 19 Sep) which is the same as 1Q17 and 2Q12, totalling 1H17 NDPS to 28.0 sen which is higher than the 26.0 sen paid in 1H16.

A sequential quarterly decline on margin compression. In tandem with a 3% contraction in top-line, 2Q17 core profit fell 3% QoQ to RM239.2m largely due to mogas margin compression as well as higher opex on staff salary and benefits. The decline in revenue was primarily due to lower ASP, which fell 5% as Mean of Plats Singapore (MOPS) decreased. This was despite a 3% hike in sales volume, which could be due to higher Hari Raya festive season travelling in end-June.

Weaker results compared to last year. Despite strong revenue growing 22%, which was due to higher MOPS-led ASP by 28% offsetting the 5% decline in sales volume, 2Q17 core earnings fell 11% from RM269.2m which we believe was due to stronger margin achieved last year as EBITDA margin inched to 7% from 6% previously. Likewise, 1H17 core profit inched up to RM492.0m from RM489.6m in 1H16 although revenue surged 29% from last year. The strong revenue growth was attributed to a 35% jump in ASP as MOPS price leapt while sales volume fell 5%.

Off-peak in 3Q17. We expect sales volume to come off in 3Q17 given the high traffic volume in 2Q17 for mid-year school holiday in end-May to early-June as well as the Hari Raya holiday. Nonetheless, the less volatile crude oil price movement so far in July-August which mirror MOPS movement will help to stabilise or improve mogas margin further. Meanwhile, the new weekly review of fuel pump prices should be a positive as it is more reflective of market price compared to the monthly review; thus, resulting in better inventory cost control.

Retain OUTPERFORM. For now, we keep our estimates unchanged. We continue to rate the stock OUTPERFORM given its resilient business volume while the weekly pump price review should help them mitigate inventory cost shock to ensure better profit earnings. Our price target is maintained at RM26.70/share based on 3-year moving average of 25x CY18 earnings multiples. Risks to our call include sharp drop in business volume and a sudden plunge in MOPS within a brief period of time.

Source: Kenanga Research - 22 Aug 2017