KUALA LUMPUR: It remains to be seen just how the diesel subsidy rationalisation will affect Petronas Dagangan Bhd
's (PetDag) bottomline moving foward in the year.
In its results announcement yesterday, PetDag said it experienced a decrease in retail diesel volume following the implementation of Subsidised Diesel Control System (SKDS) 2.0 in June 2024.
However, commercial diesel volume registered an uplift, as a result of the higher retail diesel price.
It was reported that diesel retail sales fell 30% or eight million litres a day in the week after the subsidy cut, about half of which was redirected to commercial channels.
According to Kenanga Research, the near-term impact of the diesel subsidy rationalisation could be less severe than expected.
In its results update, Kenanga Research is of the view that the near-term impact of the subsidy rationalisation could be muted, observing that the removal of gasoline subsidies in Indonesia had little effect on the growth of its sales volumes.
"A relevant case study is the Indonesian market, where gasoline subsidies were partially removed in 2015, yet gasoline sales volumes per day continued to grow from 470,000 barrels per day gradually to 670,000 barrels per day by 2023," the research firm said in a note.
Kenanga, which has an "outperform" recommendation on PETRONAS Dagangan said the stock is a bargain as the market might have overcorrected for the negative impact of the subsidy rationalisation.
It, however, lowered its target price by 11% to RM21.20 from RM23.70 previously on the basis of weaker long-term volume outlook post-subsidy rationalisation.
Another research firm, Hong Leong Investment Bank (HLIB) Research, said it expects contribution from PetDag's retail segment to record sequential decline in the second half of the year as the impact of floated diesel prices will be fully felt from 3Q24 onwards.
"Even if local-driven sales volume were to sustain since the subsidy rationalisation took effect on June 10, the reduced diesel smuggling activities will likely hit PetDag’s diesel sales," it said.
HLIB's back of the envelope calculation suggest PetDag could lose over 500 million litres of diesel sales per annum, equivalent to 3% of total sales volume in 2023.
However, it noted that the commercial segment's contribution should remain strong as Means of Platts Singapore jet fuel costs have continued to decline in 3Q, coupled with greater diesel sales volume driven by diversion from retail channels.
HLIB maintained its "hold" call on PetDag with a target price of RM19.13.
In the second quarter ended June 30 (2Q24), PetDag posted a higher net profit year-on-year (y-o-y) to RM276.4mil from RM275.7mil previously.
Revenue for the quarter rose 10.4% YoY to RM9.84bil while earnings per share stood at 27.80 sen.
The group declared an interim dividend of 20 sen per ordinary share amounting to RM198.69mil for the second quarter, payable on Sept 18.
