• Petronas Dagangan Bhd’s (PetDag) 2QFY17 reported earnings from continuing operations grew by +32.6%yoy to RM241.6m

• Both Retail and Commercial segment recorded sales growth of +18.9%yoy and +26.8%yoy respectively

• Sales and profit expanded despite overall decline in product volume sold of -5%yoy

• Second interim dividend of 14sen per share declared

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

Earnings on track. PetDag’s 2QFY17 reported earnings from continuing operations grew by +32.6yoy to RM241.6m. The commendable profit is premised on strong sales growth of +22%yoy for the quarter. The company’s 6MFY17 earnings kept pace with our and consensus expectations, accounting for 52.0% and 52.3% of earnings forecasts respectively.

Topline expansion attributable to ASPs. PetDag’s 2QFY17 sales grew by +22%yoy to RM6.5b largely due to higher average selling prices (ASP) of +28%yoy based on the Mean of Platts Singapore (MOPS) prices, despite volume shrinking by -5%yoy.

Retail segment. Segment revenue expanded commendably by +18.9%yoy to RM3.4b largely due to the overall increase in average selling prices of mogas and diesel by +24%yoy. The increase is partly offset by a decline in volume of -4%yoy. The segment operating profit also increased by +50.0%yoy to RM154.4m due to improved operating efficiencies and lower depreciation costs.

Commercial segment. Similar with the Retail segment, the Commercial segment revenue also posted an increase to RM3.05b. Segment operating profit managed to sustain by +1.9%yoy to RM155.2m. The increase in sales is due to ASPs increasing by +34%yoy despite a -6% drop in sales volumes. Better margins were also recorded from lower operating expenditure.

Dividends. The company declared its second interim dividend for FY17 of 14sen per share, representing a payout ratio of 57.9%. Cumulative dividend payout is at 28sen per share (payout ratio of 68.8%).

Impact on earnings. We are maintaining our earnings forecasts at this juncture.Maintain BUY. We are maintaining our Buy recommendation on PetDag with an unchanged TP of RM28.00 per share. Our valuation 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 - 22 Aug 2017