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Keep NEUTRAL, with new MYR22.22 TP from MYR22.58, 1% upside. Petronas Dagangan’s FY22 results came in with no surprises – core earnings surged 38% YoY, led by both stronger commercial and retail divisions. There was a substantial improvement in its liquidity, evident by the stronger operating cash flow of MYR2.3bn in 4Q22 following the full receipt of subsidy receivables. While commercial sales volume is likely to recover amidst China reopening, we are watchful over the potential impact of the targeted fuel subsidy implementation towards its retail arm.
Within expectations. At 104% and 100% of our and Street full-year estimates, PETD’s FY22 core earnings of MYR756m (+38% YoY) came in within expectations. A fourth interim DPS of 26 sen and special DPS of 14 sen were declared, lifting full year DPS to 76 sen (FY21: 70 sen).
Results review. 4Q22 revenue fell by 6% QoQ on lower ASPs (-6%) amidst flattish sales volume. As such, core earnings declined 37% QoQ no thanks to the weaker commercial division as a result of less favourable price trend and higher opex. Cumulatively, FY22 core earnings still increased by 38%, on the back of both retail and commercial divisions, led by 28% higher sales volume and 26% ASPs as well as higher gross profit across all products. On the flipside, the convenience division recorded lower PBT of MYR16m (-60% YoY) dragged by higher opex due to business expansion despite higher Mesra sales recorded.
Outlook. Retail and commercial sales volumes grew 33% and 20% YoY in FY22. We expect commercial sales volume to pick up subsequent to China reopening and margins could normalise in the longer run. In the retail division, despite the strong sales volume recovery thus far, any slowdown in economic activities may affect the growth trajectory. Meanwhile, we noticed a substantial improvement in its liquidity position as evident by a sizeable operating cash flow of MYR2.3bn in 4Q22 (3Q22: -MYR732m) following the full receipt of subsidy receivables from the Government. Moving forward, PETD will continue to launch more stand-alone Café Mesra this year and install more fast chargers at its existing stations. Note that it opened 25 Café Mesra and 14 direct charge or DC fast chargers in 4Q22.
We maintain our earnings estimates andour DCF-derived TP drops slightly to MYR22.22 after latest net cash update, with the incorporation of a 2% ESG premium, based on its score of 3.1 out of 4. This implies a 26x FY23F P/E, which is slightly above its 5-year mean of 25x. At 80% dividend payout, vs the pre-pandemic average historical payout ratio of 78% (ex- special dividends), the group offers decent FY23F-25F yields of 3.2-3.7%.
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....