• Keep NEUTRAL, TP drops to MYR18.39 from MYR20.24, 6% upside with 5% FY24F dividend yield. Petronas Dagangan’s 9M24 results are in line, as we expect its margins to undergo a moderation in 4Q24. We think there may be an overhang on its share price, pending uncertainties over the impending implementation of RON95 subsidy rationalisation starting mid-2025.

• Within expectations. At 86% and 88% of our and Street full-year estimates, PETD’s 9M24 core earnings of MYR864m (+11% YoY) are within expectations. This is because we also expect its margin to undergo a moderation in 4Q24. A third interim DPS of 24 sen was declared, taking the 9M24 total to 62 sen (3Q23: 20 sen).

• Results review. 3Q24 revenue dipped by 1% QoQ on lower sales volumes (-1%) amidst comparable ASPs. Despite so, 3Q24 core earnings improved by 21% QoQ on lower operating expenditure, which offset the lower gross profit from higher product costs and less favourable Mean of Platts Singapore (MOPS) price trend. 9M24 revenue improved by 5%, mainly driven by a higher sales volume (+4%) and ASP (+1%). 9M24 core earnings also grew by 11%, on higher gross profit for both segments, due to lower product costs and favourable MOPS price trends, which masked the higher opex.

• Outlook. PETD’s retail sales volume remained flattish YoY but commercial sales volume increased by 4% YoY in 3Q24. The convenience segment also continued to deliver improved sales in 3Q24 (+21% YoY, driven by higher Kedai Mesra sales). PETD guided that its retail diesel sales volume decreased following the implementation of the Subsidised Diesel Control System (SKDS) 2.0 in June, whilst commercial diesel sales rose as a result of the higher retail diesel price. Such a trend could continue in 2025. Meanwhile, the Government will start implementing targeted subsidies for RON95 petrol in mid-2025 and remains committed to providing subsidies for 85% of the population. It was reported that the Government is considering a mechanism with MyKad and e-wallet. Depending on the implementation mechanism, we do not discount the possibility of this having a negative impact on retail sales volume, including a potential reduction in illegally-exported motor gasoline.

• We maintain our earnings estimates but our DCF-derived TP drops to MYR18.39 from MYR20.82 after ascribing a higher WACC of 8.1% (from 7.8%) to factor in a more uncertain outlook upon the fuel targeted subsidy implementation. Our TP also includes a 4% ESG discount, based on the company’s ESG score of 2.8 out of 4. Our TP implies 18x FY25F P/E, ie slightly below -1.5SD from its 5-year mean of 24x.

Source: RHB Securities Research - 26 Nov 2024