• Keep NEUTRAL, new TP of MYR22.58 from MYR23.17, 1% downside with c.4% FY24F yield. Petronas Dagangan’s FY23 results bore no surprises, with core profit surging 30% YoY on the back of better contributions from the commercial segment. Overall sales volume grew by 8% YoY in FY23, and we expect this to remain resilient in 2024. That said, its operating cash flow turned negative (-MYR87m) in FY23 due to a delay in subsidy receipts.

• Within expectations. At 99% and 98% of our and Street full-year estimates, PETD’s FY23 core earnings of MYR987m (+30% YoY) are in line with expectations. A fourth interim DPS of 27 sen was declared (4Q22: 40 sen), bringing full-year DPS to 80 sen (FY22: 76 sen).

• Results review. 4Q23 revenue improved by 2% QoQ on higher sales ASPs (+2%) amidst flattish sales volume. Core earnings also increased by 5% QoQ to MYR210m, thanks to a stronger commercial segment as a result of higher gross profit from Jet A1 and diesel sales, which masked the hike in opex. FY23 core earnings surged by 30% YoY to MYR987m, mainly anchored by a stronger commercial arm – this, in turn, was led by better gross profit from Jet A1, higher sales volumes and higher interest income, as well as a stronger convenience segment.

• Outlook. PETD’s retail and commercial sales volumes grew 11% YoY and 0% YoY in 4Q23, and overall volume grew by 8% in FY23. Its retail sales volume is likely to remain resilient in 2024, backed by decent private sector consumption. Its commercial business should still benefit from a continuous recovery in tourism activities, but operating margins may still be volatile depending on product price fluctuations. Its convenience store division recorded a YoY growth in 4Q23 LBT to MYR15.8m, as a result of higher opex despite the stronger sales from Mesra Retail & Café. Meanwhile, following the announcement of the implementation of targeted subsidies for diesel (in 2024) and RON95 petrol (in 2H24), the impact remains unclear as the timing of phases and implementation method are not disclosed. Note that the negative operating cash flow (OCF) expanded to MYR868m in 4Q23, vs -MYR2m in 3Q23, dragging full-year OCF to -MYR87m (FY22: +MYR2bn) following an increase in trade receivables (+7% QoQ, delay in subsidy receipts) and a reduction in trade payables (-13% QoQ).

• We maintain our earnings estimates but our DCF-derived TP drops to MYR22.58 after we updated PETD’s latest net debt position. Our TP also includes a 4% ESG discount, based on the company’s ESG score of 2.8 out of 4. Our TP implies 22x FY24F P/E, ie slightly below its 5-year mean of 25x. At a 80% dividend payout ratio vs the pre-pandemic average historical payout ratio of 78% (ex-special dividends), this counter offers decent FY24-26F yields of 3.6-3.8%.

Source: RHB Research - 27 Feb 2024