Review

• Petronas Dagangan Berhad’s (PETDAG) 9MFY24 core net profit of RM862mn (+10% YoY) came in ahead of expectations at 92% of ours and 87% of consensus’ full-year forecasts. We attribute the outperformance to stronger than expected volume and margin.

• The group declared an interim dividend of 24sen/share (ex-date: 9 Dec 2024), which brought 9MFY24 dividend to 62sen/share (74% DPR).

• YoY: PETDAG’s 3QFY24 revenue declined -1.9% YoY mainly attributed to lower average selling price in the commercial segment (-14% YoY), which was partly offset by higher sales volume (+4% YoY). However, group pretax profit rose +70% YoY mainly due to higher profit for Jet A1 and diesel in the commercial segment given favourable MOPS trend and improved demand. We reckon the margin expansion from declining MOPS is temporary (due to a lag in passing on lower fuel cost to customers) and the trend could reverse if jet fuel prices bounce back. In addition, PETDAG benefited from a shift in diesel demand to the commercial segment postsubsidy retargeting, where it has a larger share.

• QoQ: 3QFY24 group revenue fell -1.1% QoQ mainly due to lower sales volume. However, group pretax profit was up +12.6% QoQ driven mainly by the commercial (+24.8% QoQ) and convenience (+55.4% QoQ) segments. The commercial segment registered better margins in 3QFY24 due to continued decline in MOPS price in the current quarter. Meanwhile, retails segment earnings eased against a festivity-driven 2QFY24.

Impact

• In line with the stronger than expected result, we raise FY24E/25F/26F net profit by 22.6%/8.5%8.5% respectively to reflect higher margins (for FY24 specifically) and sales volume as we believe the immediate-term impact of RON95 subsidy rationalisation could be milder than earlier anticipated.

Outlook

• Following subsidy retargeting for diesel, the Government had recently announced a subsidy retargeting for RON95 under Budget 2025. To recap, the RON95 subsidy retargeting is expected to be implemented from midCY25 involving the T15 household income group (which will be defined by the Government at a later stage). While we were earlier concerned about the RON95 subsidy rationalisation, we believe the impact to sales volume in the immediate term could be mild as we believe the T15 household income group is unlikely to significantly reduce consumption because of the measure. We note however, there is always the possibility of expanding the scope of RON95 subsidy retargeting to other income groups beyond the T15 further out, especially in the broader context of driving the transition to cleaner transportation modes (such as electric vehicles and public transportation).

Valuation

• We raise our TP to RM18.20 (from RM18.10 previously) following the earnings revisions in this report. Our valuation now pegs PETDAG to its long-term mean of 18x (from 19.5x previously), which we believe better reflects PETDAG’s fundamentals and reduces valuation skewness during the Covid-period. Nevertheless, following share price retracement in the past 3 months, we now raise PETDAG to Hold from Sell.

• Still, regulatory risk remains from any expansion of RON95 subsidy retargeting scope. We also note that the current fossil fuel subsidy policy contradicts the drive for land transport decarbonisation; longer-term trend of migration to EVs and a more fragmented EV charging market compared to fuel retailing are factors that might structurally impact valuation multiples further out.

Source: TA Research - 26 Nov 2024