PETDAG’s FY22 results beat our forecast thanks to stronger sales volumes, although just meeting with consensus. PETDAG will continue to benefit from the reopening of the economy. Hence, we revise our FY23F earnings higher by 13%, TP up marginally to RM24.00 (from RM23.90), and maintain our MARKET PERFORM call.

Slightly above our expectation, but in-line with consensus. FY22 core net profit of RM745m exceeded our forecast by 7% due to stronger sales volumes but only met consensus estimate.

Strong recovery year. FY22 core earnings jumped 36% YoY, as sales volume grew by 28% while average selling prices rose by 26%. The strong sales volumes came from both segments – retail segment recording a 33% jump in volume amidst the higher demand, while its commercial segment saw a 20% rise.

Beneficiary of economic recovery. PETDAG stands as a prime beneficiary of the rebound in the Malaysian economic growth in a post pandemic era. The company will leverage on the increased demand for retail fuel as well as the resumption of foreign airlines operations to drive sales of its commercial products.

Forecasts. We raise our FY23F earnings by 13% to account for the higher sales volume growth assumptions, while introducing new FY24F numbers.

Maintain MARKET PERFORM, with a slightly higher DCF-derived TP of RM24.00 (from RM23.90 previously) as we have also rolled forward our valuation base year, based on WACC of 10% and TG of 1%.

Overall, we like PETDAG as a play on the opening of the economy, being the largest chain of petrol stations in the country. However, the possible implementations of targeted fuel subsidies, as well as global economic uncertainties could hamper volume demand growth.

Risks to our call include: (i) the 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 - 23 Feb 2023