Review

• Petronas Dagangan Berhad’s (PETDAG) 1HFY24 core net profit of RM500.3mn (-13.8% YoY) came in within expectations at 53% of ours and 50% of consensus’ full-year forecasts.

• The group declared a second interim dividend of 20.0sen/share, which brought 1HFY24 dividend to 38sen/share (75% DPR).

• QoQ: 2QFY24 pretax profit grew 21.2% QoQ mainly driven by the Commercial segment, which saw pretax profit increase by 36.5% QoQ. We believe this is partly due to better margins for jet fuel given lower MOPS during the period coupled with typically lagging selling price movement. Additionally, the subsidy rollback for diesel saw retail diesel prices rise to RM3.35/litre (from RM2.15/litre), which drove an increase in commercial sales volume, offset by lower retail sales volume post-subsidy rationalisation. Meanwhile, the improvement in Retail segment earnings was possibly due to festivities that fell during the period.

• YoY: 2QFY24 pretax profit rose 5.6% YoY driven mainly by the Commercial segment, which saw segmental pretax profit rise by 18% YoY in the period. This was driven by better gross profit for diesel and jet fuel on the back of favourable MOPS price trend and improved demand, partly offset by higher operating expense.

Impact

• No changes to our earnings forecast.

Outlook

• Following the subsidy retargeting for diesel, the same has been mooted for RON95, though no clear timeline has been indicated by the Government so far. We believe the prospective subsidy rationalisation for RON95 could adversely impact PETDAG’s Retail segment earnings given demand destruction and comparatively higher sales volume derived from petrol compared to diesel.

Valuation

• Maintain Sell at unchanged TP of RM18.10 based on of 20x CY25 EPS. Our valuation is at a discount to its 5-year mean forward PER of 31x given an increasingly challenging earnings outlook from subsidy rationalisation plans undertaken by the Government.

Source: TA Research - 21 Aug 2024