• Downgrade to HOLD (TP: RM19.10). Petronas Dagangan (PetDag) 1Q24 core PATAMI of RM232mn was inline with both our and consensus’ expectation at 22% respectively. 1Q24 core earnings declined 22% YoY mainly due to absence of one-off impact from lower product cost that contributed to strong earnings in 1Q23. This had more than offset the impact of higher quarterly sales volume of 7% YoY to 4.2bn litres (1Q23: 3.9bn litres, 4Q23: 4.2bn litres). The company declared a 1st interim DPS of 18sen which is higher than 1Q23 DPS of 15sen. We cut FY24-26F earnings by 8-18% to account for potentially lower diesel sales volume in anticipation of subsidy rationalisation implementation by the government. Downgrade PetDag to a HOLD (from a BUY) with lower DCF-derived TP of RM19.10 (from RM25.40).

• Key highlights. 1Q24 PATAMI rose 39.3% QoQ to RM232mn mainly due to impact of lower product cost and favourable MOPS price trend. Sales volume still maintained at at c.4.2bn litres.

• Earnings forecast. We cut our FY24F/FY25F/FY26F earnings by 8%/16%/18% respectively as we turned more conservative with our sales volume assumption. Currently, we project its sales volume to decline by c.5% to 15.5bn litres in FY24F from 16.3bn litres recorded in FY23 in anticipation of implementation of diesel subsidy rationalisation in 2H24. We expect sales volume to decline further by 3% to 15bn litres in FY25 on full year impact of the implementation.

• Outlook. We foresee more downside risk to our sales volume assumption as we believe higher mogas product prices would be detrimental to consumption.

Source: BIMB Securities Research - 23 May 2024