PETALING JAYA: Analysts say they are concerned about the risks posed by the impending fuel subsidy rationalisation to Petronas Dagangan Bhd
(PetDag).
Kenanga Research said PetDag’s retail volume may be be hit as fuel subsidies are scrapped, although it added that past experience points to the impact being temporary.
Nevertheless, the research house continues to expect a stable retail outlook for PetDag in its financial year 2024 (FY24).
As for PetDag’s commercial division, Kenanga Research stated that it is poised for growth driven by an increase in business activity.
PetDag divides its business into three segments – retail and commercial for fuel-related operations, and convenience for its non-fuel business.
The government is on track to roll out a targeted-subsidy programme for RON95 petrol in the second half of 2024 (2H24).
TA Research foresees the subsidy rationalisation leading to demand contraction, adversely impacting PetDag’s retail segment from FY24 onwards.
It expects diesel pricing to be gradually floated starting from the second quarter of 2024 (2Q24) while RON95’s subsidy rationalisation will be later around 4Q24.
Shifting the focus on PetDag’s commercial segment, TA Research expects a potential margin compression if elevated jet-fuel prices persist.
“Considering that jet fuel prices have trended upwards since January 2024, if the unfavourable price movement continues, the commercial segment will be impacted by margin compression quarter-on-quarter (q-o-q) in 1Q24,” TA Research said.
It added that the sales price of jet fuel historically lags the fluctuation of its cost price.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) pointed out that jet fuel price spiked 22% q-o-q to US$113 per barrel in 3Q23, causing a 27% drop in earnings during the quarter, as PetDag’s jet fuel average selling price (ASP) usually lags cost prices.
“Since then, the average price of jet fuel has stabilised at US$108 per barrel in 4Q23 and in turn, contributed to the improved commercial performance as ASP eventually caught up with cost prices,” it noted.
HLIB Research anticipates PetDag’s commercial business to post flat results in 1Q24, given the steady jet fuel price of US$103 a barrel.
Coupled with subsidy rationalisation, the research firm suggests limited growth potential for PetDag’s retail fuel volume, believing it has likely reached a saturation point.
“Plus, the imminent subsidy rationalisation for RON95 (likely in late-2024), which will elevate pump prices, is expected to discourage retail fuel consumption,” it added.
Looking forward, MIDF Research believes PetDag has the capacity to leverage increased tourism, air travel and the logistics sector, for fuel demand.
The research house also said PetDag’s primary focus will be on its non-fuel business, considering extensive maintenance and repairs for its petrol stations and Mesra convenience outlets in 2023.
Additionally, it said PetDag had been establishing its Café Mesra brand nationwide, underscoring its commitment to enhancing customers’ experiences.
In terms of sustainability, MIDF Research said PetDag actively participated in various initiatives such as solar-powering petrol stations and increasing collaboration for electric-vehicle charging points.
“We believe these efforts would assist PetDag in capitalising on the clean-energy industry and possibly add in another non-fuel revenue stream to its convenience segment,” it noted.
In anticipation of PetDag’s growth in its convenience segment and sustainability initiatives, MIDF Research has revised its earnings estimates for FY25 upward by 4%
It maintained a “buy” rating on the stock with an unchanged target price (TP) of RM24.91 a share.
Similarly, Kenanga Research raised its FY24 earnings forecast by 6% after imputing a slightly higher commercial volume growth assumption to 3% from 2%.
Correspondingly, it raised the TP on PetDag by 6% to RM23.70 per share from RM22.40 previously while maintaining its “market perform” call.
While TA Research maintained its “sell” call and a TP of RM21.90, HLIB Research kept its “hold” call with a revised TP of RM21.06 per share, down from RM21.49 previously.
HLIB Research said it trimmed its forecasts for FY24 and FY25 by 2% and 1.4%, respectively, due to adjustments in effective tax rate assumptions.
