Investment Highlight

• Petronas Dagangan Bhd’s (PetDag) 3QFY17 reported earnings from continuing operations grew by +34%yoy to RM334.6m

• Both Retail and Commercial segment recorded sales growth of +12.3%yoy and +25.8%yoy respectively

• Sales expanded on +3%yoy growth in sales volume

• ASP for the quarter expanded by +18%yoy

• Third interim dividend of 20sen per share declared

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

Normalised earnings within estimates. PetDag’s 3QFY17 reported profit from continuing operations increased by +34%yoy to RM334.6m. Excluding exceptional items consisting gains on disposals, interest income from deposits and gains from forward contracts, PetDag’s cumulative 9MFY17 normalised profit of RM718.3m kept pace with our and consensus expectations, making up 75.2% and 75.4% of FY17 full year earnings estimates respectively. Sales and profit expansion for the quarter is largely attributable to 3% increase in sales volume coupled with 18% increase in MOPS prices.

Large gain on disposal recorded. As expected and detailed in our Corporate Update report dated 6 July 2017, PetDag recorded a gain on disposal of RM430.8m from the disposals of 100% equity interest in Petronas Energy Philippines Inc (PEPI) and 40% equity interest in Duta Inc.

Retail segment. 9MFY17 segment revenue expanded commendably by +18.8%yoy 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 -5%yoy. The segment operating profit also increased by +35.8%yoy to RM610.2m due to improved MOPS prices.

Commercial segment. Similar with the Retail segment, the 9MFY17 Commercial segment revenue also posted an increase of +36.7%yoy while segment operating profit managed to sustain growth of +6.9%yoy. The increase in sales is due to ASPs increasing by +35%yoy and sales volume increasing by +1%. Better margins were also recorded from lower operating expenditure.

Dividends. The company declared its third interim dividend for FY17 of 20sen per share, representing a payout ratio of 59.5%. Cumulative dividend payout is at 48sen per share (payout ratio of 59.3%). With the gain on disposal recorded, we are expecting a special dividend as PetDag’s cash level is currently at RM3.48b compared with RM2.57b in 2QFY17. RM552.4m worth of cash is recorded for 9MFY17.

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 - 13 Nov 2017