Review

• FY16 core profit of RM995mn (+29% YoY) exceeded our expectations and consensus’ by 15%/16% respectively. The outperformance was mainly due to higher-than-expected volumes, as we had earlier anticipated seasonally higher year-end repair and maintenance costs. Furthermore, we had expected volumes to be impacted by year-end monsoon season floods.

• Headline net profit of RM913mn includes exceptional items such as:- 1) PPE write-offs (RM7mn), 2) net gain from disposal of Vietnam subsidiary (RM35mn), 3) profit from discontinued business (RM31mn), and 4) impairment of diesel subsidy receivables (RM90mn).

• YTD, profits were stronger due to a combination of:- 1) volume growth of 2%, 2) lower opex at the retail segment, 3) lower effective tax rate, and, 4) to a lesser extent, higher margins from the aviation segment. This was more than offset: 1) higher costs at the commercial segment, and 2) lower ASPs (-14%) for both retail (-12%) and commercial (-17%). On the bright side, ASP and volume trends in 4Q16 signal improved traction in price recovery and demand (Figure 1).

• The group declared final interim DPS of 30 sen (4Q15: 20 sen) bringing FY16 DPS to 70 sen (FY15: 60 sen). This exceeds our expectation of 65 sen DPS, and implies stable payout of 76%.

Impact

• Maintain FY17-18 earnings forecasts pending an analyst briefing later today. We introduce FY19F earnings forecast and incorporate FY16 unaudited results.

Valuation

• Earnings growth will likely remain subdued in the near-to-medium term. This is underpinned by:- 1) holdback on expansion of new outlets, 2) muted volumes in-line with sluggish economic activities, particularly from the O&G upstream activities. Furthermore, valuations are stretched, whereby the stock is currently trading at 1SD above historical mean. Maintain Sell on Pet Dag with TP of RM18.51 based on 21x FY17 P/E.

Source: TA Research - 22 Feb 2017