1HFY22 core earnings (+5% YoY) came in within expectations. With the lifting of movement restrictions, reopening of international borders and normalisation of economic activities, the previously poor market environment is behind PETDAG. We maintain our forecasts but raise our TP by 25% to RM22.25 based on DCF (from RM17.85 based on 26x FY23F PER previously). Upgrade to MARKET PERFORM from UNDERPERFORM.

1HFY22 within expectations. 1HFY22 core net profit of RM280m (arrived at after stripping off impairments, gains on disposals, and unrealised forex) came in within expectations, at 52% and 47% of our and consensus estimates, respectively.

Results helped by higher sales volumes. 1HFY22 core net profit grew 5% YoY, thanks to higher sales volumes especially for its retail segment. This was partially offset by losses at its commercial segment which was affected by higher product costs.

Operations normalising. With the lifting of movement restrictions, reopening of international borders and normalisation of economic activities, PETDAG’s sales volumes and hence profitability is returning to normalcy and stability.

We maintain our forecasts but raise our TP by 25% to RM22.25 based on DCF (WACC: 10%; TG: 1%), from RM17.85 based on 26x FY23F PER previously, to reflect the improved earnings stability post the pandemic. There is no adjustment to TP based on ESG for which it is given a 3-star rating as appraised by us (see Page 4). Upgrade to MARKET PERFORM from UNDERPERFORM.

Risks to our call include: (i) removal of fuel subsidies, hurting fuel consumption, (ii) global recession, hurting fuel demand, and (iii) movement restrictions on resurgence of epidemic and pandemic occurrences.

Source: Kenanga Research - 25 Aug 2022