• Maintain HOLD (TP: RM19.10). Petronas Dagangan (PetDag) 1H24 core PATAMI of RM504mn (-12% YoY) was inline with both our and consensus’ expectation at 50% and 51% respectively. Sales volume rose to a record high of 4.37bn litres (+5% YoY and 4% QoQ) in 2Q24 underpinned by healthy demand during festive season. Nonetheless, core earnings were largely flattish as it was offset by higher effective tax rate of 28.5% (2Q23: 26.3%). The company declared a 2nd interim DPS of 20sen (2Q23: 18sen), bringing 1H24 dividend to 38sen which is higher than 1H23 DPS of 33sen. We have doubt that sales volume will remain on growth trajectory amidst the implementation of diesel subsidy rationalisation. Maintain PetDag as a HOLD with unchanged DCF-derived TP of RM19.10.

• Key highlights. 2Q24 PATAMI rose 16.2% QoQ to RM271mn mainly driven by commercial segment (Table 2) particularly on Diesel and Jet A1 fuel amidst higher volume from airline industry. 1H24 sales volume stood at 8.6bn litres (+6.7% YoY) which made up 55% of our FY24F estimate.

• Earnings forecast. No changes.

• Outlook. We project Petdag’s sales volume to decline by c.5% to 15.5bn litres in FY24F (from 16.3bn litres recorded in FY23) before it decline further by 3% to 15bn litres in FY25 on full year impact of the implementation of diesel subsidy rationalisation. This is inline with management’s guidance that there was a reduction in retail diesel volume in June 2024. At the moment, there is an upside risk to our sales volume estimate given that the commercial diesel volume registered an uplift as more commercial vehicles switched to diesel fleet card to be entitled for subsidy under Subsidised Diesel Control System (SKDS) 2.0. However, in view of possible implementation of subsidy rationalisation for RON95, we think downside risk remains. Hence, no changes to our estimate at this juncture.

Source: BIMB Securities Research - 21 Aug 2024