The strong 1QFY21 came in above our expectations, largely thanks to higher product margin spreads in tandem with the rise in oil prices, despite lower sales volumes. Moving forward, the re-implementation of MCO with stricter travel restrictions is expected to clamp sales volumes. Moreover, we also expect margins to normalise into the next quarter as oil prices are starting to stabilise. Upgrade to MP and hike TP to RM19.80.

1QFY21 above our expectations. 1QFY21 core net profit of RM184m came in above our expectations at 41% of our full-year forecast, due to better-than-expected margin spreads given the rise in oil prices. However, the results were within consensus expectations at 29%. Announced interim dividend per share of 14.0 sen per share is also within expectation.

Quarter boosted by better margin spreads. YoY, 1QFY21 earnings jumped multiple folds, driven by better product margins given the rise in oil prices, offsetting lower sales volumes. Similarly, QoQ, the quarter saw a jump of 87% sequentially, largely boosted by better product margins amidst higher prices, despite the lower sales volumes.

MCO to impact sales volumes. The re-imposition of MCO with stricter travel restrictions is expected to hamper the group’s sales volumes. Additionally, with oil prices stabilising going into 2QFY21, as compared to 1QFY21, we expect product margins spreads to be more normalised moving into the next quarter.

Upgrade to MARKET PERFORM. Post-results, we raised our FY21E/FY22E earnings by 51%/13% raising our margin spread assumptions. As a result, TP is also enhanced to RM19.80 (from RM17.60 previously), pegged to unchanged valuations of 26x PER – roughly in-line with the stock’s historical average.

Risks to our call include: (i) better-than-expected ASPs, and (ii) higher-than-expected sales volumes.

Source: Kenanga Research - 27 May 2021