PETDAG : A window dressing proxy

Still trading below pre-rationalisation level. PETDAG’s share price experienced a persistent downtrend in 2024 due to the government’s diesel subsidy rationalisation plans. To recap, the subsidy rationalisation for diesel in Peninsular Malaysia was introduced in mid-2024 to address leakages by implementing a floating retail price mechanism while channeling subsidies to targeted recipients through the Budi Madani cash scheme and the SKDS. This policy shift sparked concerns about a substantial decline in PETDAG’s diesel sales, triggering a knee-jerk sell-off to as low as RM16.82. However, we believe the market may have overestimated the impact on PETDAG’s diesel sales post-subsidy cuts.

This view is supported by its latest 3QFY24 earnings, where retail operating profit only moderated slightly (-2%). This resilience can be attributed to PETDAG’s relatively high market share in the commercial channel and fleet card system, which likely cushioned the impact on overall diesel sales volumes. With the share price still trading below the pre-rationalisation levels of RM21.00–23.00 and steady diesel sales volumes alongside resilient commercial segment performance, we believe the risk-reward profile has shifted to the upside. As such, we have a BUY call on PETDAG with a TP of RM22.49, reaffirming our belief that the market has overreacted to the diesel subsidy rationalisation program’s potential impact on the company’s earnings outlook.

Window dressing play. The traditional December “window dressing” effect, which has demonstrated a 93% success rate since the Global Financial Crisis (over the past 15 years), presents a short-term trading opportunity for traders. Among the KLCI components, PETDAG emerges as a compelling proxy for this trend, being one of the worst-performing KLCI stocks YTD (excluding GENM and Genting) with a decline of -8.2%. Its combination of an attractive risk-reward profile and weak share price performance — amid concerns that may be overestimated — positions PETDAG as a strong candidate for window-dressing activities.

Pending double bottom breakout. PETDAG is pending for double bottom breakout. A successful breakout above the RM20.68 neckline will spur the price toward RM22.12-22.40-23.68 region. Cut loss at RM18.57

Collection range: RM19.24-19.42-20.04

Upside targets: RM22.12-22.40-23.68

Cut loss: RM18.57

Source: Hong Leong Investment Bank Research - 11 Dec 2024