KEY INVESTMENT HIGHLIGHTS

• PetDag’s reported earnings of RM126.6m in 4QFY19, +171.2% higher year-over-year

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

• Sales volume continues to grow despite contraction in revenue

• Fourth interim dividend of 40.0sen declared

• FY20F earnings trimmed by -11.4%

• Maintain BUY with a lower TP of RM24.58 per share

PetDag’s 4QFY19 earnings of RM126.6m came in below expectations. Petronas Dagangan Berhad’s (PetDag) 4QFY19 net profit came in at RM126.6m. This brings its FY19 cumulative earnings to RM829.5m which was below our and consensus’ full-year earnings estimates at 67.3% and 68.9% respectively. Comparing against 4QFY18, revenue was flat however; earnings surged by +171.2%yoy mainly due to the inventory lag losses experienced in 4QFY18 which saw its earnings dipped to RM46.7m. Meanwhile, on a quarterly sequential basis revenue was also flat whilst earnings declined by -47.0%qoq which was attributable to lower average selling prices during quarter which had offset the increase in sales volume.

Retail Segment. Segment revenue grew marginally by +2.0%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. However, this was moderated by the decline in average selling prices by -3.0%yoy during the quarter. Meanwhile, the segment’s PBT grew by >100%yoy which was mainly due to higher gross profit for Mogas and Diesel. PBT was also further supported by favourable MOPS price during the quarter.

Commercial Segment. Segment revenue declined by -6.3%yoy during the quarter. This was mainly due to the decline in average selling prices by -5.0%yoy during the quarter coupled with the decline in sales volume by -1.0%yoy. The decline in volume was attributed to the shortage in supply of Petcoke following refinery turnaround. This was however, was mitigated by higher Diesel volume arising from higher demand from dealer and upstream sector. Meanwhile, the segment’s PBT grew by +17.5yoy due to higher Diesel demand during the quarter.

Fourth interim dividend of 40.0sen declared. Following the earnings announcement, PetDag declared a fourth interim dividend of 40.0sen for the quarter under review which brings its year-to-date dividend declared to 85.0sen. This translates to a yield of 4.0% to yesterday’s closing price and represents a 102% payout ratio out of its FY19 83.5sen EPS.

Impact on earnings. We are reducing our FY20F earnings estimates by -11.4% to RM906.3m (from RM1,023.2m previously) as we expect average selling prices to remain less favourable to PetDag given the global geo-political developments that continues to affect MOPS price. Additionally, we have also introduced our FY21-22F numbers in this report.

Maintain BUY. Post earnings revision, we are maintaining our BUY recommendation on PetDag with a lower TP of RM24.58 (from RM27.75 previously). Our valuation is premised on an unchanged forward PER20 of 27x pegged to EPS20 of 91.0sen. 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 - 26 Feb 2020