• Positive aircraft movement growth to sustain sales of Jet A1 fuel

• Petronas Dagangan currently holds the lion’s share of the supply of Jet-A1 fuel business in Malaysia

• Expecting demand and supply of aviation fuel to lift overall company earnings

• Maintain BUY with an unchanged TP of RM28.00 per share

Positive aircraft movement growth. Total aircraft movements in Malaysia have been registering positive year-over-year growth for the past two years. For 1HFY17, total aircraft movements in Malaysia registered +9%yoy growth, with international and domestic aircraft movements registering growth of +9.2%yoy and +8.7%yoy respectively (refer Charts 1 to 3). Our house is of the opinion that the growth momentum will sustain throughout the year and into FY18, further supported by strong passenger traffic movements locally.

PetDag’s Jet A1 fuel business. Currently, PetDag supplies Jet-A1 fuel to more than fifteen international and local aircraft carriers in both KLIA1 and KLIA2 with an estimated market share of over 70% (MIDF Research internal estimates). Therefore, we believe that our house optimism on aircraft movement growth will bode well for PetDag’s aviation fuel segment.

Contribution of Jet-A1 fuel. From our internal estimates, the supply of aviation fuel generally constitutes approximately 17-18% of total sales volume (inclusive of MOGAS, Diesel, LPG, lubricants and other petroleum-based products). An increase in demand will contribute positively to company earnings and the company is always on a continuous drive to gain new customers and to increase its market share.

Maintain BUY. We are maintaining our Buy recommendation on PetDag with an unchanged TP of RM28.00 per share. Our TP is premised on PER18 of 28x pegged to EPS18 of 100.1sen. The target PER is based on PetDag’s average four-quarter rolling PER over the past five years.

Source: MIDF Research - 3 Aug 2017