PublicInvest initiates coverage on Petron with Outperform call

KUALA LUMPUR: PublicInvest Research has initiated coverage on Petron Malaysia Refining & Marketing Bhd with an Outperform call and target price of RM14.46.

The research house said on Monday that it arrived at its target price using a discounted cash flow (DCF) method applying a weighted average cost of capital (WACC) of 7.71%. 

At its target price, Petron’s price-earnings ratio (PER) equivalent is 7.5 times, lower than the regional average of 11.4 times, but justified given its smaller market capitalisation, it said.

“Although above its long-term average, Petron’s forward PER is supported by the changing prospects of oil prices,” the research house said in a note.

It said global production cuts would be a key driver for the company, with the OPEC and non-OPEC oil production cut agreement, which is likely to be extended a second round in 1H 2018 to drive sentiment on listed oil-based companies.

“Investors’ interest on Petron will also be moved by several factors including its attractive business model which shields the company from the adverse movement of oil prices and ringgit fluctuations,” it said.

The research house added that investors’ interest will also be driven by the solid captive market for Petron’s throughput in Malaysia, apart from its underutilised capacity which can be unleashed should the need arise. 

“Above all, Petron has a backing from its parent company, San Miguel Corporation and related company, Petron Corporation, not only for cross-selling but also for technical expertise and financial support, particularly in a capital intensive and long gestation sector like oil,” it said.