Petronas Dagangan Bhd’s (PetDag) 9MFY23 results disappointed on unfavourable product price movements in 3QFY23, according to Kenanga Research.
“However, its 9MFY23 core net profit rose by 38% year-on-year on the opposite side. These speak for its earnings volatility which renders volume growth less meaningful. Not helping either is the gradual adoption of electric vehicles (EVs),” it said in its note today (Nov24).
Kenanga cuts FY23F net profit forecast by 11% to account for lower retail and commercial division EBIT margins but held our FY24 forecast.
Correspondingly, we reduce our DCF-based TP (WACC: 10%; TG: 1%) by 10% to RM22.40, from RM24.90, with no change to our valuation based on 3-star ESG rating.
However, it maintains its MARKET PERFORM call.
“We like PetDag due to its highly cash generative business that translates to high capacity to pay dividends, its strong balance sheet with a sizeable war chest of RM2.8 billion and growing convenience division revenue on stronger demand for Café Mesra.
“However, we are concerned of downside risk to its retail business long-term volumes due to impending EV adoption,” it said.
The risks to Kenanga’s call include fuel subsidy rationalisation, hurting demand, the global economy slips into a recession and derails recovery of international air travel, and slowdown in the local aviation sector.
The research house said PetDag’s 9MFY23 core profit of RM781.8 million came in at 74% and 77% of our full-year forecast and the full-year
consensus estimate, respectively.
This is excluding RM6.2 million impairment of receivable, RM7.9 million impairment on PPE, RM9 million forex loss, RM2 million inventory write down and RM3.9 million receivable write back.
“However, we consider the results below expectations, expecting a weak 4Q due to lumpy opex typically incurred during the quarter. The variance against our forecast came largely from unfavorable product price movements in the commercial division coupled with high retail opex.
It added DPS of 20 sen was declared, which is also below expectations.
“We believe the post-pandemic recovery in product volumes (across all divisions) has run its course. Moving into FY24, volume overall is expected to grow at a slow pace at 4% which is closer to the average historical growth of its products.
“That aside, the gradual adoption of EVs in Malaysia may also pose a long-term threat to the group’s conventional retail business (driven by
diesel and gasoline sales).”
