KEY INVESTMENT HIGHLIGHTS

• PetDag’s 3QFY19 earnings contracted by -11.6%yoy to RM239.0m

• Earnings impacted by higher product costs and less favourable MOPS prices during the quarter

• Sales volume continues to grow despite contraction in revenue

• Third interim dividend of 16sen declared

• FY19-20F earnings trimmed by -11.7% and -4.7%

• Maintain BUY with a revised TP of RM27.75 per share

PetDag’s 3QFY19 earnings of RM239.0m came in below expectations. Petronas Dagangan Berhad’s (PetDag) 3QFY19 net profit came in at RM239.0m. This brings its 9MFY19 cumulative earnings to RM702.9m which is below our and consensus’ full-year earnings estimates at 67.3% and 68.9% respectively. Comparing against 3QFY18, revenue was flat however; earnings dipped by -11.6%yoy mainly due to the decline in average selling prices by -4.0%yoy during the quarter despite the increase in sales volume. Meanwhile, on a quarterly sequential basis revenue and earnings increased by +2.6%qoq and +38.3%qoq respectively which is attributable to higher sales volume registered for both its retail and commercial segments.

Retail Segment. Segment revenue grew marginally by +1.9%yoy driven by: (i) higher sales volume of +6.0%yoy; (ii) improved station productivity; (iii) higher number of station in operations and; (iv) introduction of the new PETRONAS PRIMAX 95 with Pro-Drive earlier this year. The revenue was however offset by the decline in average selling prices by -3.0%yoy during the quarter. Meanwhile, the segment’s PBT contracted by -27.6%yoy which is mainly due to higher product cost and less favourable MOPS prices trend when compared against 3QFY18. The decline in PBT was also due to higher depreciation and amortisation.

Commercial Segment. Segment revenue and profit declined marginally by -2.2%yoy and -1.7%yoy respectively during the quarter. This was mainly due to the decline in average selling prices by - 10.0%yoy during the quarter coupled with higher operating expenditure incurred during the quarter. However; the decline was partially offset by the increase in sales volume by +8.0%yoy. The increase in volume was mainly attributable to Diesel as a result of increased demand coming from upstream sector. Additionally, sales volume for Jet A1 also grew during the quarter following higher demand from existing customers.

Third interim dividend of 16.0sen declared. PetDag also declared a third interim dividend of 16.0sen for the quarter under review which brings its year-to-date dividend declared to 45.0sen. This translates to an annualised yield of 2.5% yield to last Friday’s closing price and represents a 64% payout ratio out of its 9MFY19 70.8sen EPS. 

Impact on earnings. We are reducing our FY19-20F earnings estimates by -11.7% and -4.7% respectively as we expect average selling prices to remain less favourable to PetDag given the global geo-political developments that continues to affect MOPS prices.

Maintain BUY. We are maintaining our BUY recommendation on PetDag with a revised TP of RM27.75 (from RM28.35 previously). Our valuation is premised on an unchanged forward PER20 of 27x pegged to EPS20 of 102.8sen. The target PER is based on PetDag’ rolling four-quarter average PER over five years. Despite the earnings revision, we continue to view PetDag positively given its ongoing effort in mitigating the impact from lower selling prices via: (i) increasing pump productivity; (ii) aggressive marketing and product promotions and; (iii) creating brand stickiness via SETEL mobile application. Additionally, its fundamentals remain intact and dividend yield is decent at 3.4% FY20F.

Source: MIDF Research - 25 Nov 2019