KEY INVESTMENT HIGHLIGHTS

• 9MFY24 earnings +10%yoy and revenue up +5%yoy; earnings came in within our expectation
• Higher revenue due to higher sales volume and ASP; higher earnings from better results in Retail and Commercial
• Retail and Commercial leveraged on favourable MOPS prices trend, but all segments impacted by higher opex
• Maintain BUY with TP of RM24.63

Maintain BUY, TP: RM24.63. Petronas Dagangan Berhad (PDB)'s 9MFY24 earnings came in within our expectations at 78%. As such, we maintain a BUY call on PDB, with an unchanged target price of RM24.63.

Earnings up +10%yoy. PDB's 9MFY24 revenue gained +5%yoy to RM28.9b, while earnings increased +9.9%yoy to RM837.6m. The higher revenue was driven by 4% sales volume growth as well as 1% increase in average selling prices. The higher earnings were contributed by increased gross profit across all segments, offset by higher opex.

Retail saw higher sales volume. 9MFY24 revenue rose +11.7%yoy to RM15.3b, and operational profit added +7.1%yoy to RM666.6m. The higher revenue was mainly contributed by higher sales volume of 8% in line with increase in demand and higher average selling prices by 3%. The higher earnings were attributed to favourable MOPS prices trend, lower product costs and increased volume sold; offset by higher opex.

Commercial's benefits from uptick in MOPS. 9MFY24 revenue dropped -1.1%yoy to RM13.4b, while operational profit gained +28.9%yoy to RM491m. Lower revenue was contributed by lower sales volume by 1% and comparable average selling prices. Meanwhile, earnings gained due to favourable MOPS prices trend and improved demand for Jet A1 and Diesel. These were offset by decreasing demand for specialty products and higher opex.

Convenience saw higher demand. 9MFY24 revenue was up by +17.9%yoy to RM220.5m, while operational profit declined -28.5%yoy to RM31m. The higher revenue was attributed to higher demand for Kedai Mesra, Café Mesra and PETRONAS Shop merchandise. However, the lower earnings were attributed to higher opex; offset with higher gross profit from chargeable sales.

Positive impact from supportive landscape. With Malaysia's economic growth expected to maintain its momentum until the end-year, we anticipate that PDB's FY24 performance to remain sanguine, notably in the Retail and Commercial segments. We opine that domestic demand for petroleum products to remain robust, fueled by consumer and investment spending, more so with Brent crude oil currently standing at an average of USD80pb which could give leverage on PDB's sales volume.

However, we noted that external risks are likely to persist, which includes: (i) the pace of global economic recovery, (ii) escalating geopolitical tensions, and (iii) protectionist policies. Nevertheless, PDB is anticipated to benefit from the overall supportive operating landscape. We reiterate our positive view on the group's FY24 performance on the back of higher demand for fuel products and higher travelling frequencies following the end-year holiday season.

No changes to earnings estimates. All-in-all, we make no changes to our earnings forecast and maintain our BUY call for PDB. We also maintain our target price at RM24.63, based on pegging PER of 21.8x to a EPS25 of 113.1sen. The PER is a slight discount from the previous PER of 22.5x based on PDB's 3-Y historical PER, which factors in: (i) oil prices volatility, (ii) lower short-term demand for petroleum products, and (iii) governmental regulatory changes. We continue to favour PDB for its consistent dividend payouts, stable PBT margins and long-term leverage on branding.

Source: MIDF Research - 26 Nov 2024