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

• Higher diesel volume recorded for retail segment

• Maintain BUY with unchanged TP of RM30.08 per share

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

Retail segment. Segment revenue grew by +4.0%yoy premised on higher volume from Mogas and Diesel following stable prices and shifting of diesel customers from commercial to retail. However, earnings declined by -2.0%yoy due to higher spending on advertising and promotion.

Commercial segment. Similarly, commercial 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.

LPG segment. As for the LPG segment, it recorded a marginal increase of +0.4% and +0.3% for both revenue and earnings respectively attributable to higher volume against supply following the implementation of new incentive programme as well as higher demand from major customers.

Lubricant segment. Segment revenue and earnings grew by +6% and +2.0% respectively. The increase was due to higher volume as a result of higher demand.

Impact on earnings. No changes to earnings forecasts.

Maintain BUY. We are maintaining our BUY recommendation on PetDag with an unchanged TP of RM30.08. Our valuation is premised on forward PER19 of 26x pegged to EPS19 of 115.7sen. The target PER is based on PetDag’s five-year rolling average PER.

Source: MIDF Research - 23 Aug 2018