INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 2QFY18 earnings surged by +41.5%yoy to RM314.4m

• ASP increased by +5.0%yoy while sales volume declined marginally by -1%yoy

• Second interim dividend of 16 sen declared

• Maintain BUY with revised TP of RM30.08

Within expectations. Petronas Dagangan’s 2QFY18 reported earnings surged by +41.5%yoy to RM314.4m. On a quarterly sequential basis, revenue was supported by higher average selling price of +5.0% offset by lower sales volume of 1%. The 6MFY18 earnings accounted for 53.6% and 52.8% of our and consensus full year FY18 earnings estimates respectively.

Retail segment. Segment profitability increased in line with increasing MOPS price. In addition, lower product and freight costs also contributed to higher margin for Mogas, Diesel and Retail LPG. However, this was partially offset by higher spending on advertising and promotion.

Commercial segment. Segment revenue grew by +17.7%yoy mainly attributable to increase in average selling price by +18.0%yoy despite a marginal -1% decline in volume due to lower demand for Jet A1. That said, this was offset by volume growth from Diesel, bulk LPG and Sulphur following high customer demand.

Impact on earnings. No changes to earnings forecasts.

Dividends. Declared second interim dividend of 16 sen, representing 51% payout of profit.

Maintain BUY recommendation on PetDag. We roll forward our valuation base year to FY19, deriving a new target price of RM30.08 per share. Our valuation is premised on revised target PER19 of 26x (five year rolling average), from 28x previously pegged to EPS19 on 115.7 sen. Whilst we are of the opinion that company fundamentals remain intact, we are cognizant that the decline in sales volume could pose medium to long term downside risks. However, the effects from declining sales volume has been successfully mitigated by the management team by boosting operational efficiency and by robust inventory management.

Source: MIDF Research - 21 Aug 2018