INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 4QFY18 marred by inventory lag losses

• Investing in 10-15 new stations in FY19

• Aggressive marketing efforts to continue

• Newly refurbished station to cushion FY19 earnings

• FY19F earnings revised down slightly by -5.5%

• Maintain NEUTRAL with a revised TP of RM27.02 per share

Earnings marred by inventory lag losses. To recap, Petronas Dagangan’s 4QFY18 reported earnings declined by -83.2%yoy to RM46.7m despite a +10%yoy increase in revenue mainly attributable to: (i) the decline in MOPS prices in November and December; (ii) higher operating expenses due to aggressive asset refurbishment during the quarter and; (iii) higher spending on advertising and promotions. The inventory lag losses due to the rapid decline in crude oil price back in November and December 2018 resulted in a decline of RM232.6m in profit after tax when compared against the same period last year.

Retail segment. Segment revenue grew by +3.0%yoy premised on higher volume +4.0%yoy mainly attributable to shifting of diesel customers from commercial to retail. However, earnings declined by >100%yoy due to: (i) inventory lag losses and; (ii) higher spending on advertising and promotion.

Commercial segment. Similarly, commercial segment revenue grew by +19.0%yoy mainly attributable to improved volume of Jet A1 and Fuel Oil. However, the segment recorded marginally lower volume by -1.0%yoy mainly due to Diesel following the shift to retail segment.

LPG segment. As for the LPG segment, it recorded flat revenue of +0.3%yoy following marginal increase in demand of +1.0%yoy from retail segment following intensive marketing activity undertaken during the quarter.

Lubricant segment. Segment revenue increased by +6.0%yoy due to increase in volume by +2.0%yoy. The increase in volume is due to higher demand from customers.

Source: MIDF Research - 28 Feb 2019