INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) posted record high 4QFY16 earnings at RM259.3m

• Total sales volume surprised on the upside rising 2%yoy to 15,253.9 million litres

• Retail segment remains as largest revenue contributor

• 70sen in dividends declared for FY16

• Maintain NEUTRAL with a revised TP of RM26.91

Earnings recap. 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) touched RM885m. The commendable results were achieved despite average selling prices declining by -14%yoy.

Cash level. The company’s cash level as at 31 December 2016 was RM2.4b with a day-to-day average level of RM2.1-2.3b. Management guided that capex for FY17 is expected to be around RM400m but we believe that this value might eventually be lower as the majority of the allocation would be maintenance capex in nature.

Retail segment. Segment revenue declined by -11%yoy to RM10.75b despite retail volume increasing by +2%yoy to 6,612.4m litres. This was largely due to a decrease in ASP by approximately -12%yoy.

Commercial segment. Segment revenue also staged a decline of - 17%yoy to RM9,056.1b despite commercial volume increasing by 6,956.9m litres.

LPG and Lubricant segment. Segment revenue for the LPG segment declined by -13%yoy to RM1,420.2b as volume sold shrank slightly by - 1%yoy to 1,625.4m litres. The Lubricant business on the other hand recorded an increase in revenue and sales volume, rising +8%yoy and 4%yoy respectively. Management further noted that in 4QFY16, the Petronas lubricant brand is the first non-Japanese brand to supply products to Honda.

Impact on earnings. We are increasing our FY17 core earnings forecasts by +8.5% to RM955.2m largely premised on an expected increase in sales volume in FY17. We were previously conservative in expecting flat year-over-year sales volume in FY17, but given the aggressive initiatives implemented to boost throughput of each station, we are optimistic that the company may post an increase in sales volume compared with that of the year before. For FY16, Petdag sold 15,253.9 million litres of products, representing a 2%yoy increase.

Maintain NEUTRAL. We are maintaining our NEUTRAL stance on PetDag, with a positive bias on a revised TP of

RM26.91 per share. Our valuation is premised on PER17 of 28x pegged to EPS17 of 96.1sen. The target PER is based on PetDag’s average four-quarter rolling PER over the past five years.

Source: MIDF Research - 23 Feb 2017