PETRON Malaysia’s FY23 results disappointed on poor crack spreads, partially offset by a higher sales volume says Kenanga. The house expects crack spreads to remain unfavourable over the immediate term, due to excess refining capacity coupled with weak demand for refined products amidst a soft global economy. It also maintained its forecasts, TP of RM4.74 and a MARKET PERFORM call.
Kenanga said the FY23 net profit of RM295m missed forecast by 8%. The variance against forecast came largely from weaker-than-expected crack spreads. Consensus estimate is unavailable as they are the only research house covering the stock in the market. YoY, its FY23 revenue fell 6% due to lower product market prices, partially mitigated by a higher sales volume of 37.1m barrels (+10%) as domestic demand grew. Its net profit dropped by a steeper 9% mainly due to poor crack spreads. QoQ, its 4QFY23 net profit plunged 49% dragged by: (i) a lower sales volume (-3%), (ii) a lower ASP, and (iii) weak refining margins.
The house maintains its FY24F earnings while introducing FY25F numbers. The ascribed valuation benchmark is also broadly in line with its listed global peers such as TOA Oil, Phillips 66, HF Sinclair, Valero, Marathon Petroleum. Note that our TP imputes a 5% discount to reflect a 2-star ESG rating as appraised by Kenanga.
As for outlook, the house expects regional crack spreads to remain unfavourable over the immediate term given the increased availability of refining capacity in the market with refineries coming back online after the recent maintenance cycle, coupled with weak demand for refined products amidst a soft global economy. Over the longer term, the transition to
renewable energy, particularly the adoption of EVs will result in a structural decline in the demand for refined products.
