INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 1QFY18 earnings expected to be in-line with our forecasts

• Sales volume expected to taper in-line with industrywide decline

• Expecting first interim dividend of between 17-20sen per share

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

Earnings expected to be in-line with forecasts. Petronas Dagangan Berhad’s 1QFY18 results are expected to be in-line with our FY18 full year’s earnings forecast of RM994.4m. We believe that the company’s normalised profit will be between RM210-250m for 1QFY18. This would represent declines of approximately -10%yoy and -20%qoq. We are anticipating a slight tapering in earnings this year as volumes are expected to moderate in light of decline in sales volume and comparatively higher retail pump prices.

Sales volume expected to taper. Since FY16, sales volume experienced a slowdown in growth in-line with the commencement of LRT Kelana Jaya line extension (3QFY16) and KVMRT SBK-line (4QFY16). We have already anticipated the slowdown in sales volume, especially from the retail fuel segment. In addition to that, we have factored in downward pressure on sales volume as there will be more aggressive reimaging and refurbishments of stations this year. The target is to reimage approximately 50 stations in FY18 where the shutdown of each station will take approximately one month compared with three months previously.

Impact on earnings. No changes to earnings forecasts.

Dividends. We are expecting first interim dividend of between 17- 20sen per share to be declared.

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 - 16 May 2018