Recovering from earnings shock in 2QFY19 which was due to MOPS price volatility, 3QFY19 rebounded strongly which was partly driven by volume growth of 4% albeit a 1% dip in ASP. Going forth, 4QFY19 may see seasonally low volume but stable crude oil prices so far should support earnings stability. We believe near-term negatives are mostly priced in but lack of price catalyst led us to keep MP on the stock with revised TP of RM22.75.

9MFY19 met expectations. At 73% of both house/street’s FY19 estimates, 9MFY19 core profit of RM690.8m came in within expectations with 3QFY19 rebounding strongly by 41% sequentially to RM244.4m as the preceding quarter results were hit by the plunge in Mean of Platts Singapore (MOPS) prices. Meanwhile, it declared 3rd interim NDPS of 16.0 sen (ex-date: 06 Dec; payment date: 20 Dec) in 3QFY19 vs. 14.0 sen and 16.0 sen paid in 2QFY19 and 3QFY18, respectively, totalling YTD 9MFY19 NDPS to 45.0 sen which is the same as 9MFY18.

3QFY19 recovered from MOPS price hit sequentially. 3QFY19 core profit surged substantially by 41% to RM244.4m from RM173.1m, while revenue rose 3%, as the 2QFY19 results were badly hit by MOPS price volatility. The normalisation of earnings is reflected in its segment results where EBIT for Retail Segment jumped 48% to RM170.3m while Commercial Segment saw its operating profit rising 18%. On the other hand, improved revenue was largely due to higher sales volume by 4% which was offset by lower ASP by 1%.

Yearly results also affected by unfavourable MOPS prices. YoY, 3QFY19 core profit declined 9% from RM269.9m in 3QFY18 with flattish revenue, which was due to higher product costs and depreciation charges, higher by 39%. Overall, earnings for Retail Segment which plummeted by 28% due to higher product cost and less favourable MOPS prices trend and higher depreciation. Meanwhile, Commercial Segment’s operating profit fell 2% on higher opex. Group’s revenue remained flattish as 9MFY19 core profit contracted 12% to RM690.8m despite revenue inching up 1%. This was largely due to the abovementioned MOPS price volatility hit in 2QFY19, in addition to higher A&P and system maintenance costs for Retail Segment. The increase in revenue was backed by 6% rise in sales volume but was dented by 4% decline in ASP.

Crude oil prices stabilised should offer earnings stability. After the deep hit in 2QFY19 and to some extent 3QFY19, crude oil prices are fairly stable for the past two months. This signals some indication towards a stable MOPS movement. Nonetheless, the key earning driver i.e. volume growth remains lacklustre or worse still a trend downwards for its fuel segment given the change in means of commuting especially in Klang Valley with the launch of MRT as well as the trend of electric vehicles. In the coming 4QFY19, volume could be seasonally lower given more air travel volume for year-end holiday compared to ground travel.

It is still in the price; MARKET PERFORM maintained. While keeping our estimates, we upped our target price slightly to RM22.75 based on unchanged -1SD 3-year moving average of 22.2x from RM22.45 at 21.9x. In our opinion, all fundamentals have been largely priced in, and with the lack of price catalyst, we are keeping our MARKET PERFORM recommendation which is supported by a decent dividend yield of c.3%. Upside risks to our recommendation include sudden plunge in MOPS prices and weaker-than-expected business volume.

Source: Kenanga Research - 25 Nov 2019