INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 1QFY18 reported earnings declined -13.7%yoy

• Sales volume declined by -4%qoq while ASP increased by +3%qoq

• Lower diesel volume recorded for both retail and commercial segments

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

Earnings in-line with forecasts. To recap, Petronas Dagangan Bhd’s 1QFY18 reported profit declined by -13.7%yoy to RM218.5m. On a quarterly sequential basis, revenue is supported by higher average selling price of +3%yoy offset by lower sales volume of -4%yoy. 3MFY18 earnings came in within our full year FY18 estimates at 22%, but fell short of consensus full year estimates by a variance of -5%. The lower year-over-year earnings and tapering sales volume is within our expectations.

Retail segment. Segment revenue declined both y-o-y (-1%) and q-oq (-0.7%) premised on sales volume declines of -3%yoy and -1%qoq. Lower sales volume is visible across the market due to market degrowth and closure of stations.

Commercial segment. On the contrary, commercial segment recorded an increase of +11%yoy attributable to sales volume increase of +8%yoy. This is largely attributable to higher fuel oil and sulphur from higher bunker sales.

LPG segment. Revenue increased by +5%yoy attributable to a +6% increase in sales volume. The increase is premised on the implementation of new incentive programmes and higher demand from major customers.

Lubricant segment. Segment revenue and sales volumes declined by -2%yoy and -7%yoy respectively. The declines are a result of lower market demand.

Sales volume expected to remain challenging. Moving forward into this year, the sales volume is expected to remain challenging from market de-growth as well as closure of stations for refurbishment activities.

Impact on earnings. No changes to earnings forecasts.

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 - 22 May 2018