INVESTMENT HIGHLIGHTS

• Petronas Dagangan Bhd’s (PetDag) 2QFY19 earnings contracted by -45.1%yoy to RM172.8m due to decline in MOPS prices and higher expenses

• Revenue grew by +4.5%yoy whilst overall sales volume increased by +8.0%yoy

• Higher no. of stations in operation and improved station productivity cushioned earnings

• FY19-20F earnings maintained pending analyst briefing

• Maintain BUY with unchanged TP of RM28.35 per share

Within expectations. Petronas Dagangan’s 2QFY19 reported earnings contracted by -45.1%yoy to RM172.8m despite a +4.5%yoy increase in revenue and a +8.0% increase in overall sales volume. This was mainly attributable to: (i) lower average selling prices by - 2.0%yoy; (ii) higher product costs; (iii) higher depreciation and amortisation following the capitalisation of SETEL application and; (iv) higher advertising and promotion expenses. Its 1HFY19 earnings of RM463.9m accounted for 44.4% and 45.5% of our and consensus full year FY19 earnings estimates respectively.

Retail segment. Segment revenue grew by +3.9%yoy mainly driven by higher sales volume of +7.0% fuelled by; (i) improved station productivity; (ii) higher number of stations in operation and; (iii) the introduction of the new PETRONAS PRIMAX 95 with ProDrive. This was however offset by the decline in average selling prices by -3.0%. Meanwhile, segment profit declined by -51.3%yoy due to lower margins for Mogas and Diesel following decreasing MOPS price trend and higher product costs. Additionally, LPG margin has also declined due to higher material costs.

Commercial segment. Segment revenue grew by +5.%yoy mainly attributable to sales volume by +9.0% but offset by lower average selling prices by -4.0%. The increase in volume is mainly driven by higher Jet A1 sales following higher demand from existing customers however; this was partially offset by the decline in sale of Fuel Oil due to lower customer demand. Meanwhile, segment profit declined by -14.3%yoy due to lower Diesel margin following decreasing MOPS price trend and lower Fuel Oil sales volume.

Impact on earnings. No changes to earnings forecasts pending an analyst briefing to be held today.

Maintain BUY. We are maintaining our BUY recommendation on PetDag with an unchanged TP of RM28.35. Our valuation is premised on forward PER20 of 27x pegged to EPS20 of 105.3sen. The target PER is based on PetDag’s rolling four-quarter average PER over five years.

Source: MIDF Research - 26 Aug 2019