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

• Decrease in product volume seen across the board

• Continuous effort to increase throughout per station

• Efficient inventory management contributed to earnings

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

Earnings recap. To recap, 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.

Product volume drop not an immediate concern. PetDag’s total product volume for 2QFY17 fell by -4.9%yoy as product volume decline across mogas, diesel, fuel oil, LPG and lubricants were recorded. The drop in product volume is not an immediate concern however, as the trend is seen across the entire sector affecting all petrol dealers.

Efforts to increase throughput per station remains. The drop in product volume is expected to be negated by the company’s continuous effort in enhancing the volume throughout of each station by winning over market share from its competitors. Proactive steps taken are by enhancing the Kedai Mesra and offering ‘instant gratification’ promotions for the customers.

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 - 23 Aug 2017