Review

• Petronas Dagangan Berhad’s (PETDAG) FY23 core net profit of RM972.3mn (+29.6% YoY) came in within expectations at 98% of ours and 97% of consensus’ full-year forecasts.

• The group declared a final interim dividend of 27.0sen/share (4QFY22: 40.0sen/share), bringing the YTD DPS to 80.0sen (FY22: 76.0sen).

• QoQ: Pretax profit grew 9.2% QoQ due to favourable movement in jet fuel prices in the commercial segment (operating profit +77.8% QoQ) as well as higher other income (includes interest income). These more than offset the share of loss from associate/JV amounting to RM12.1mn compared with share of profit of RM3.4mn, as well as the operating loss at the convenience segment amounting to RM15.6mn compared with operating profit of RM11.5mn in 3QFY23. We attribute the operational loss at convenience segment to higher operating expenditures such as maintenance costs and professional services. Notably, the effective tax rate came in at 35.8% (3QFY23: 23.6%) from non-deductible expenses.

• YoY: 4QFY23 pretax profit surged 18.3% YoY due to favourable jet fuel prices in the commercial segment (operating profit +10.2% YoY) compared with 4QFY22 as well as margin expansion in the retail segment (operating margin +0.7%-pts YoY) driven by volume growth (+11% YoY).

• YTD: FY23 pretax profit jumped 17.3% YoY despite flattish revenue (+2.2% YoY) mainly contributed by less volatile jet fuel prices in the commercial segment (operating profit +46.5% YoY) and margin expansion in the convenience segment (+3.7%-pts YoY) on the back of greater sales at Kedai Mesra and Café Mesra.

Impact

• No change to earnings forecasts pending analyst briefing later today.

Outlook

• In Budget 2024, the government announced the rationalisation of fuel subsidy starting with diesel, but subsidised diesel would continue to be enjoyed by selected users such as goods transport companies. The Central Database Hub for targeted subsidies (PADU) is open for registration from 2 January to 31 March 2024. Based on the timeline, we expect diesel to be gradually floated starting in 2QCY24 while RON95’s subsidy rationalisation will be later at around 4QCY24. This would lead to demand destruction and adversely impact PETDAG’s retail segment from FY24 onwards.

• Considering that jet fuel prices have trended upwards since January 2024, if the unfavourable price movement continues, commercial segment will be impacted by margin compression QoQ in 1QFY24. Note that the selling prices of jet fuel lags the fluctuation in jet fuel cost prices.

Valuation

• Maintain Sell with unchanged target price of RM21.90/share based on of 24x CY24 EPS.

Source: TA Research - 27 Feb 2024