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Keep NEUTRAL, with new MYR20.15 TP from MYR20.05, 8% downside. Petronas Dagangan’s 1H22 results came in within expectations. Sales volumes for the retail and commercial segments are expected to grow, but margins could be volatile. In order to manage the continuous growth in trade receivables, PETD has extended suppliers’ credit terms and tapped on revolving facilities.
Within expectations. At 45% and 48% of our and Street full-year estimates, PETD’s 1H22 core earnings of MYR290m (+9% YoY) were within expectations. A second interim DPS of 11 sen was declared (2Q21: 10 sen).
Results review. 2Q22 revenue grew by 25% QoQ on stronger ASPs (+14%) and sales volume (+9%). As such, core earnings surged 30% QoQ, masking higher opex and dealer’s commission after stripping off MYR87m disposal gain on LPG business in Sarawak, MYR7m trade receivables impairment loss and etc. Cumulatively, 1H22 core earnings also increased by 9%, thanks to the more robust retail division, led by 33% higher sales volume and higher gross profits across all products. This was offset by the weaker commercial unit due to higher product costs. The convenience division also returned to the black, with a PBT of MYR15m from MYR3m losses in 1H21, led by higher Mesra sales.
Outlook. Retail and commercial sales volumes grew 50% and 18% YoY in 2Q22. We expect commercial sales volume to pick up subsequent to the re-opening of borders, as Malaysia transited to an endemic phase on 1 Apr. That said, margin could be under pressure, in view of the higher product prices. In the retail division, despite the strong sales volume recovery thus far, any slowdown in economic activities may affect the growth trajectory. Meanwhile, PETD’s operating cash flow has declined by MYR551m in 2Q22 as the increase in trade receivables (+1.5x QoQ) was offset by the spike in trade payables (+1.1x QoQ). Apart from that, we have also seen a net drawdown of MYR691m revolving facilities in 2Q22. We may continue to see a rather volatile operating cash flow, mainly from the escalated fuel subsidy from the Government amidst higher product prices.
We maintain our earnings estimates but lower our FY22F DPS to 42 sen assuming a lower payout of 65% (1H22 implied payout at 55%). As such, our DCF-derived TP rises slightly to MYR20.15, with the incorporation of a 2% ESG premium, based on its score of 3.1 out of 4. We expect dividend payout to normalise to 80% in 2023, vs the pre-pandemic average historical payout ratio of 78% (ex-special dividends). Post adjustments, the group offers decent FY22F-24F yields of 1.9-2.9%.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....