Petronas Dagangan Bhd (PDB) is awarding three points instead of one for every litre of petrol purchased by its Mesra cardmembers as it looks to strike a win-win situation with customers. - Filepic
KUALA LUMPUR: CIMB Equities Research has downgraded Petronas Dagangan from Hold to Reduce as its share price has run up on expectations of a special dividend and it believes investors may be disappointed.
It said on Wednesday investors have been anticipating a special dividend payout from Petronas’s subsidiaries since the government asked Petronas to pay a RM30bil special dividend.
“Petronas Chemicals told analysts it will not pay special dividends, hence we believe Petronas Dagangan is unlikely to do so as well. Key upside risk: stronger non-fuel income growth from various initiatives,” it said.
Petronas Dagangan’s 9M18 core net profit largely met expectations (at 73% of its previous full-year forecast) but 4Q18F is at risk of missing expectations.
“We cut our DDM-based target price to RM24.27 as the recent steep fall in oil prices may result in lagged inventory losses this quarter,” it said.
The steep fall in Mean of Platts Straits (MOPS) prices since early-October 2018 implies lagged inventory losses in 4Q18F, reversing (in whole or in part) the lagged inventory gains of 9M18.
From 2Q19F onwards, the government plans to limit the retail subsidies for RON95 to a narrower group of people and with clear volume limits, possibly hurting Petronas Dagangan’s retail sales.
The new aviation levy on departing air passengers from June 1, 2019F may hurt airline profitability, potentially leading to capacity cuts and lower jet fuel demand.
Petronas Dagangan’s 3Q18 core net profit of RM279m was 16.5% lower on-year on account of higher advertising and promotion costs, higher staff wages, lower sales volume (-3% on-year), and “what we believe to be a lower quantum of lagged inventory gains compared to 3Q17”.
Revenues, however, were up due to higher average selling prices, which more than offset the lower sales volume.
Average 3Q18 commercial selling prices were up 31% on-year on the back of strong MOPS prices, but average retail selling prices were up only 7% on-year, constrained by the pump prices of RON95 and diesel, which have been fixed at RM2.20/litre and RM2.18/litre, respectively, since March 22, 2018.
For 9M18, core net profit was relatively flattish, with the sales volume decline of 1% on-year and higher advertising and staff costs more than offset by lagged inventory gains in the retail segment arising from a steady increase in MOPS prices.
Petronas Dagangan reported 3Q18 volumes that were 5% on-quarter higher than 2Q18, with retail volumes up 3% and commercial volumes up 7% on-quarter.
Retail volumes grew on-quarter due to higher car sales during the tax-free period between June 1 and Aug 30, and due to the higher price of commercial diesel, which incentivised a switch to retail diesel.
The on-quarter growth in commercial volumes was probably due to the higher volume of jet fuel sales in the peak summer months, partially offset by lower diesel sales.
The 3Q18 retail volumes rose 2% on-year, the first on-year increase in six quarters, while commercial volumes fell 8% on-year on lower jet fuel sales as airlines rationalised capacity and as commercial diesel sales were partially displaced by retail diesel sales.
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