We left Petronas Dagangan Berhad’s (PETDAG) virtual analyst briefing with the following key takeaways: (i) Jet fuel and diesel sales volume still strong in the Commercial Segment; (ii) Share of loss from associate expected to continue; (iii) Targeted subsidies may impact the group’s bottom-line. No change to our earnings forecasts. Maintain Sell with an unchanged TP of RM20.50/share based on 22x CY25 EPS.

Jet Fuel and Diesel Sales Volume Still Strong in the Commercial Segment

According to management, the Commercial segment’s volume dropped 3% QoQ and 4% YoY, mainly dragged by commercial products other than jet fuel and diesel. This is a good sign, suggesting that the group was not impacted by the suspension of MYAirline’s operations back in Oct 2023. Meanwhile, domestic and international passenger traffic in 1Q2024 has reached 82% and 89% of 1Q2019 levels respectively. Malaysia’s air passenger traffic has maintained its growth trajectory and should recover to 2019 levels by 2025 (Figure 2). This should support the growth in PETDAG’s Commercial segment.

Share of Loss From Associate Expected to Continue

Recap that PETDAG’s share of loss from associate widened QoQ from RM12.1mn in 4QFY23 to RM14.1mn in 1QFY24 as the group continued its LPG cylinder investment into Sarawak via 49%-owned Petros Niaga. These LPG cylinders are expensed instead of capitalised, hence leading to the share of losses. Management expects the losses to continue for a few more quarters as Petros Niaga invests in more LPG cylinders to expand its geographical reach. Petros Niaga is currently the only operator licensed to sell LPG in Sarawak.

Targeted Subsidies May Drag Earnings

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. This is within expectations and the subsidy rationalisation for RON95 is expected to follow suit. We believe sales volume of mogas will inevitably be impacted as users opt for public transports and carpooling to save transportation costs. RON95 without subsidy is at RM3.35/litre, 63% higher than current subsidised price of RM2.05/litre.

Impact

No Change to Our Earnings Forecasts.

Valuation

Maintain Sell with an unchanged TP of RM20.50/share based on 22x CY25 EPS.

Source: TA Research - 24 May 2024