Kenanga maintains 'market perform' on PetDag, cuts TP to RM21.35

  • Analyst Reports
  • Wednesday, 26 Feb 2020

KUALA LUMPUR: A sharp decline in the price of crude oil coupled with downward pressure on volume caused by the Covid-19 outbreak will weigh on Petronas Dagangan Bhd's earnings for the 2020 financial year, says Kenanga research.

"Post earnings revision, we cut our target price to RM21.35 from RM22.75 as we based it on -1.5SD 3-year moving average of 23.3x from -1.0SD 3-year moving average of 22.2x as the potential higher risk of MOPS trend could hit bottomline in the coming 1QFY20," it said in a note.

The research house kept its market perform recommendation on the stock, supported by decent dividend yields of more than 3%.

Kenanga said the recent sharp decline in Brent prices from about US$70 a barrel in early January to about US$53 a barrel in early February could mean that Mean of Platts Singapore (MOPS) prices are likely to be unfavourable.

Meanwhile, the coronavirus outbreak since the end of January has impacted air travel volume badly, which will add pressure to the already lacklustre volume growth or even result in a downtrend.

"With all these background, we cut FY20 estimates by 11% but raise NDPS as our earnings payout assumption is increased to 80% from 70% previously.

"We also introduce FY21 forecasts in which we expect earnings to grow marginally by 2%," said Kenanga.

Commenting on PetDag's recently announced FY19 earnings results, the research house said they were a big let-down as 4QFY19 core profit plunged 46% quarter-on-quarter.

Revenue for the quarter was flattish at RM7.79bil but core profit plummeted to RM131.7mil owing to lower volume and higher product costs while operating expenses jumped on higher A&P and network upgrade costs in the retail segment.

For the entire year, core net profit in FY19 was RM822.5mil, which met only 87% and 89% of Kenanga's and consensus estimates respectively.

On a year-on-year basis however, 4QFY19 core profit surged 172% from RM48.4mil in the corresponding quarter in 2018.

The comparative quarter's earnings were badly hit by an unfavourable MOPS price trend while the 6% hike in sales volume in the retail segment helped to boost profit margin in the current quarter.

The group declared a fourth interim net dividend per share of 25 sen with a surprise special dividend of 15 sen per share in 4QFY19. This brought FY19 dividend to 85 sen per share or 103% payout, which beat the payout in FY18 as well as Kenanga's estimate of 70% payout.
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