INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 4QFY17 earnings grew by +7.4%yoy to exceeding RM278.6m

• Special dividend of 22sen and fourth interim dividend of 27sen announced

• Total dividend 97sen representing payout ratio of 89%

• Retail volume decreased whereas Commercial volume increased

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

Earnings outpaced expectations. PetDag’s 4QFY17 earnings grew by approximately +7.4%yoy to RM278.6m. The commendable earnings were supported by strong revenue growth of +16.4%yoy. Cumulative FY17 normalised earnings (excluding gains on disposal) expanded by approximately +15%yoy to RM1.09b, exceeding our expectations by a variance of more than >10%.

Dividends. As anticipated from the gains on disposal of the Philipines units, PetDag has proposed a special dividend of 22sen per share coupled with a fourth interim dividend of 27sen per share. The total cumulative dividend announced for FY17 is 97sen per share, representing a payout ratio of 89%.

Retail segment. Retail segment revenue and profit grew by +16.7%yoy and +26.9%yoy respectively. The surge in revenue and profit was primarily driven by average selling price increase of 23% for mogas, diesel and lubricants. The segmental growth is despite an overall contraction of -5% in volume sold and high promotional activities.

Commercial segment. Revenue for the commercial segment also staged an impressive growth of +33.4%yoy to RM12.9b. Revenue growth was driven by +3% growth in volume and +30% growth in ASPs. The expansion in volume was attributable to Jet A1, diesel and bitumen. However, profit growth tapered to +7.5%yoy due to high transportation costs.

Impact on earnings. Maintain earnings estimates at this juncture pending analyst briefing.

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 - 27 Feb 2018