Review

• Petronas Dagangan Berhad’s (PETDAG) 1QFY24 core net profit of RM226.0mn (-23.9% YoY) came in within expectations at 25% of ours and 22% of consensus’ full-year forecasts.

• The group declared a first interim dividend of 18.0sen/share (1QFY23: 15.0sen/share).

• QoQ: Pretax profit grew 14.3% QoQ mainly supported by improvement in Retail segment and turnaround in Convenience segment. Retail segment’s operating profit surged 22.0% QoQ likely due to favourable MOPS price trend. Uptrend in MOPS prices lead to better gross profit due to time lag in recognising inventories as cost of sales. Meanwhile, Convenience segment was previously dragged by write-off related to development cost for Setel App in 4QFY23. In contrast, Commercial segment’s operating profit dropped 16.1% QoQ as revenue slid 13.0% QoQ, which we attribute to lower jet fuel sales from MYAirline's suspension of operations since 12 Oct 2023. PETDAG’s share of loss from associate also widened QoQ as the group continues its LPG cylinder investment (expensed instead of capitalised) into Sarawak via 49%-owned PetrosNiaga.

• YoY: 1QFY24 pretax profit plunged 20.1% YoY dragged by volume-related operating expenditure in the Retail segment (operating profit -5.5% YoY), MYAirline's suspension of operations and less favourable MOPS jet fuel prices in the Commercial segment (operating profit -24.7% YoY) compared with 1QFY23, as well as higher operating expenditure (likely marketing expenses in conjunction with festive sales) in the Convenience segment (operating profit -62.0% YoY).

Impact

• After incorporating FY23 audited numbers and making some housekeeping adjustments, we tweak our FY24/FY25/FY26 earnings forecasts by 3.6%/- 2.9%/2.1% respectively.

Outlook

• On 21 May 2024, Prime Minister Datuk Seri Anwar Ibrahim announced that the targeted subsidies for fuel will begin with diesel and only involve consumers in Peninsular Malaysia. No implementation timeline was given but we expect the measures to commence by July 2024.

• According to domestic trade and cost of living minister Armizan Mohd Ali, Malaysia loses 3mn litres of diesel daily from smuggling. This translates into 1.1bn litres of diesel per year. With the expected floating of diesel prices, this will disincentivise smuggling activities and potentially impact PETDAG’s diesel sales. Assuming PETDAG commands 35% of diesel market share, the amount impacted amounts to 2.4% of FY23’s total sales volume.

• We expect RON95’s subsidy rationalisation to commence around end of this year. Following this, we believe there will be demand destruction for Mogas and adversely impact profitability of PETDAG’s Retail segment.

Valuation

• We roll forward our base year of valuation to FY25 and lower our PE valuation from 24x to 22x (30% discount from its 5-year mean forward PE) due to the challenging outlook from subsidy rationalisation. Maintain Sell with lower TP of RM20.50 (previous RM21.90) based on of 22x CY25 EPS.

Source: TA Research - 23 May 2024