Kenanga Investment Bank has upgraded downstream oil and gas retailer Petronas Dagangan Berhad from a “Market Perform” to an “Outperform” rating noting that the equity market has overly discounted the risks tied to potential targeted fuel subsidy rollouts for high-income earners (the T20 group).
The rating upgrade comes as PETDAG delivered a solid first-quarter financial performance for the period ended March 31, 2026 (1Q26). Its earnings matched both house and broader street projections.
PETDAG’s 1Q26 core net profit landed firmly within expectations at RM279.3 million, tracking at exactly 24% of full-year consensus estimates. This core figure strips out a one-off RM3.7 million inventory accounting gain.
In tandem with the steady earnings track, the company declared a first interim dividend per share (DPS) of 18 sen, which remains tightly in line with historical seasonal distributions and investor expectations.
A look under the hood reveals a distinct operational shift, as the retail and commercial divisions effectively switched roles during the quarter.
On a year-over-year (YoY) basis, group revenue jumped 34%, fueled by top-line growth across both divisions. The retail division benefited from a 15% surge in average selling prices alongside an 8% climb in retail sales volume.
However, group core profit contracted by 5% YoY. This dip occurred because sharp margin compression in the commercial business segment overpowered the solid margin improvements logged by the retail service stations.
A similar pattern emerged on a sequential quarter-over-quarter (QoQ) basis. While group revenue rose by 5% through parallel expansion across both divisions, core profit managed a 7% sequential increase. This recovery was driven entirely by expanding retail profit margins, which offset ongoing cost pressures in the commercial division.
According to Kenanga, PETDAG’s commercial division will likely navigate near-term headwinds due to volatile international fuel price swings. The research house highlighted that while some institutional airline contracts are temporarily locked at fixed rates, contract prices are set to renew at more favourable, normalised levels down the line
Kenanga left its financial forecasts unchanged, maintaining its discounted cash flow (DCF)-based Target Price (TP) at RM21.20. This valuation assumes a Weighted Average Cost of Capital (WACC) of 11% and a conservative terminal growth rate of 0%. The bank’s 3-star Environmental, Social, and Governance (ESG) rating for PETDAG remains unaltered.
The firm reiterated its positive stance on PETDAG’s underlying business characteristics:
Strong Cash Generation: The company maintains a highly cash-generative core business model, sustaining a high capacity for predictable dividend payouts.
Volume Resilience: Commercial volumes continue to grow despite broader macroeconomic shifts.
Diversified Retail Revenue: Non-fuel retail revenue streams continue to scale up efficiently.
While Kenanga’s outlook has turned increasingly bullish, the firm highlighted three primary downside risks that could derail its target price:A sharper-than-expected negative consumer impact following the government’s upcoming domestic subsidy rationalization program.A broader global economic recession that dampens international business activity and stalls the ongoing recovery of the global aviation sector.
An accelerated domestic rate for electric vehicles (EVs), which would directly impact long-term local gasoline consumption.
