INVESTMENT HIGHLIGHTS

• Pump prices to be set on a weekly basis – effective price every Thursday

• No change in Automatic Pricing Mechanism (APM)

• Exposure time to volatile MOPS price and inventory risks reduced

• Upgrade to BUY with unchanged TP of RM26.91 per share

Pump price to be set weekly. The Minister of Domestic Trade, Cooperatives and Consumerism (KPDNKK) Dato’ Seri Hamzah Zainudin announced that the weekly petrol and diesel prices fixed by the government will be announced every Wednesday and the prices will come into effect after midnight (Thursday) – The new mechanism will be set on 29th March and take effect on 30th March. The Automatic Pricing Mechanism (APM) however, remains unchanged.

Positive for PetDag. The weekly fixing of pump prices is positive for PetDag as it reduces the exposure time of petrol dealers to MOPS prices from one month previously, to seven days. This would mean that the likelihood of PetDag experiencing lag loss due to steep declines in crude oil/MOPS prices is reduced.

Inventory days. The weekly price fixing will further strengthen PetDag’s continuous initiative in managing their inventory turnaround days of approximately 4-5 days.

Economies of scale. PetDag currently has a petrol station network of over 1,000 stations. We believe that in a competitive price environment, where dealers are able to offer discounts (with the permission of KPDNKK), PetDag will have the upper hand in offering more competitive pump prices with additional perks at its Kedai Mesra stores as it has the most petrol stations in Malaysia and its ability to fund heavy upgrade capex at its dealerships.

Impact on earnings. No change to earnings estimates at this juncture.

Upgrade to BUY. We are upgrading PetDag to BUY (from Neutral previously), with a target price 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 Mar 2017