INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 4Q16 results expected to be seasonally weakest

• 4Q16 expected sales volume to be impacted by reduce consumption due to school holidays in December 2016

• Total revenue for FY16 expected to be approximately RM20b – within our estimates

• 4QFY16 earnings expected to be below RM200m

• Maintain NEUTRAL with an unchanged TP of RM24.80 per share

4Q seasonally weakest quarter. Petronas Dagangan’s fourth quarter (Oct-Dec) is seasonally the weakest quarter in terms of sales and earnings for the past eleven quarters due to the year-end school holidays – less travelling by car to school and to work. As such, the company’s sales volume is also usually weaker in 4Q.

Revenue and earnings. In anticipation of a weaker volume sold in 4QFY16, we are anticipating PetDag’s full year FY16 revenue to come in at approximately RM21.5-22.5b while full year earnings to be approximately RM850m. This would suggest that 4QFY16 earnings to be below

Sales volume expectations. For full year FY16, we are expecting PetDag’s sales volume to register around 15.05m litres, a very marginal decrease compared with FY15’s full year volume sold of 15.07m litres.

Impact on earnings. We are maintaining our earnings forecasts at this juncture as we believe our forecasts are intact.

Moving forward. For FY17, we are of the opinion that PetDag’s expansion plans in terms of new station openings will be limited and that the focus will be on increasing the throughput of every station. In addition, continuous effort will be placed on further reducing and containing its operating costs in a bid to increase profit margins.

Maintain NEUTRAL. We are maintaining our NEUTRAL stance on PetDag with an unchanged TP of RM24.80 per share. Our valuation is premised on PER17 of 28x pegged to EPS17 of 88.6sen. The target PER is based on PetDag’s average four-quarter rolling PER over the past five years.

Source: MIDF Research - 18 Jan 2017