INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 4QFY16 reported earnings from continuing operations surged more than two-folds to RM259.3m

• FY16 normalised earnings at approximately RM885.0m

• Earnings were largely buoyed by Retail segment

• 70sen in dividends declared for FY16

• Maintain NEUTRAL with an unchanged TP of RM24.80

Normalised earnings within expectations. PetDag’s 4Q16 reported surged by over >180%yoy to RM259.3m. The company’s FY16 core earnings (excluding interest income from deposits, profits from discontinued operations, impairment charges on receivables, forex gains and movements in assets) of RM885m met our and consensus full year expectations, accounting for 103% and 102% of earnings forecasts respectively.

Operating cash. The company’s FY16 operating cash tripled from the year earlier to RM1.98b, doubling its current cash hoard at RM2.43b compared with only RM1.25b a year earlier. The impressive cash position is attributable to aggressive cost cutting efforts implemented throughout the year.

Retail segment. Segment revenue declined by -12%yoy to RM11.9b largely due to the overall decline in average selling prices of mogas and diesel by -12%. The decline is partly offset by an increase in volume by +1%. Despite the impairment charges on receivables of RM89.9m made in 2QFY16, segment operating profit rose by 29.6%yoy. The increase in operating profit is a result of better profit margin from mogas prices and sales volume in 2HFY16. The impairment was for the subsidy claims made to the government on the sale of diesel at a subsidised price between the periods of 2012-2013. These claims have been long outstanding since.

Commercial segment. Similar with the Retail segment, the commercial segment revenue also posted a decline of -15.3%yoy to RM9.8b due to lower ASPs by -17% for aviation and diesel products. Operating profit also posted a slight decline of -1%yoy caused by higher operating costs.

Source: MIDF Research - 22 Feb 2017