Review

• Petronas Dagangan Berhad’s (PETDAG) 9MFY23 core net profit of RM783.8mn (+36.7% YoY) came in within expectations at 79% of ours and 77% of consensus’ full-year forecasts.

• The group declared a third interim dividend of 20.0sen/share (3QFY22: 20.0sen/share), bringing the YTD DPS to 53.0sen (9MFY22: 36.0sen).

• 3QFY23 core net profit was down 28.5% YoY and 28.3% QoQ respectively mainly dragged by Commercial segment from unfavourable jet fuel prices.

• YoY: 3QFY23 revenue decreased 2.1% YoY driven by lower ASP (-7% YoY) which more than offset the volume growth (+6% YoY). The commercial segment contributed the most to the drop with 8.0% YoY decrease in revenue on the back of 13% decline in ASP. Operating profit plunged 35.3% YoY due to unfavourable jet fuel prices in the Commercial segment in 3QFY23 as the selling price lags the fluctuation in jet fuel prices. In contrast, the jet fuel price is on a downtrend in 3QFY22. The Commercial segment’s operating profit plunged 70.0% YoY in 3QFY23.

• QoQ: Revenue grew 11.3% QoQ supported by ASP increase (+9% QoQ) and volume growth (+2% QoQ) but operating profit dipped 31.1% QoQ as a result of higher operating expenditure in the Retail segment (operating profit plunged 25.4% QoQ) and unfavourable jet fuel prices in Commercial segment in the quarter (operating profit plunged 42.0% QoQ).

• YTD: 9MFY23 operating profit jumped 16.1% YoY despite flattish revenue mainly contributed by less volatile jet fuel prices in the Commercial segment (operating profit +67.4% YoY) and likely a lower operating expenditure for the Convenience segment (operating profit +88.7% YoY).

Impact

• No change to earnings forecasts pending analyst briefing later today.

Outlook

• We expect PETDAG’s sales volume to continue registering steady growth in the coming quarter on the back of strong domestic economy. Meanwhile, as jet fuel price trends downwards since September 2023, we believe that the Commercial segment should register improvement in operating margin QoQ in 4QFY23 if the favourable price movement continues.

• In Budget 2024, the government announced the fuel subsidy rationalisation starting with diesel. Although the exact mechanism is not disclosed, we expect the diesel price ceiling to be raised gradually, followed by RON95 once the Central Database Hub (Padu) is ready by January 2024. Diesel and RON95 will likely be floated at market price but at a gradual pace to minimise impact on consumers. This would lead to demand destruction and adversely impact PETDAG’s bottomline, expected in FY24 onwards.

Valuation

• Maintain Sell with unchanged target price of RM21.90/share based on of 24x CY24 EPS.

Source: TA Research - 24 Nov 2023