INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 4QFY17 earnings likely to outpace our expectations

• Possibility of higher final dividend or special dividend from gain of disposal

• Total dividend payout likely to exceed >80%

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

Earnings likely to outpace expectations. PetDag will be announcing its 4QFY17 results in the final week of February 2018. At this juncture, we believe that the 4QFY17 normalised earnings (excluding gains on disposals) will most likely outpace our expectations by a variance of about +5% possibly touching the RM1.0b mark. Our expectation is largely premised on: (i) higher average RON95 MOGAS price of RM2.26 per liter in 4QFY17 compared with RM2.10 per liter in 3QFY17 (+7.6%qoq); (ii) Brent crude oil price appreciation of approximately 20% within the quarter which gives rise to ‘lag gain’ opportunities and; (iii) overall upbeat economic momentum (4QFY17 GDP growth of 5.9%).

Dividends. In addition to the expected commendable earnings, we believe that there could potentially be a special dividend or higher final dividend declared. The three cumulative dividends declared for FY17 amounts to 48sen per share. We believe that there could be approximately an additional 35-40sen declared, bringing the total dividend declared to approximately 83-88sen per share (payout >80%). This is a result of a large gain on disposal recorded in 3QFY17.

Large gain on disposal recorded. As 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. Actual cash proceeds was RM552.4m for the disposal of the aforementioned subsidiaries.

Impact on earnings. No changes to earnings estimates as our FY18 and FY19 earnings forecasts remain intact.

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 Feb 2018