PetDag posts weaker 4Q earnings

by **Cals** Mon 10 Feb 2014, 11:38

Business & Markets 2014

Written by HwangDBS Vickers Research

Monday, 10 February 2014 10:54

Petronas Dagangan Bhd
(Feb 7, RM30.50)
Maintain fully valued at RM30.50, with a target price of RM19.70. PetDag booked RM151.3 million net profit in the fourth quarter ended Dec 31 of financial year 2013 (4QFY13) (-14% year-on-year [y-o-y]; -33% quarter-on-quarter [q-o-q]), bringing FY13 net profit to RM811.8 million (-3% y-o-y) or just 81% and 79.4% of our and consensus’ estimates respectively.

Weak 4QFY13 earnings were due mainly to higher operating expenditure (+24% y-o-y; +27% q-o-q) and higher cost of goods sold (+11% y-o-y; +0.2% q-o-q), resulting in operating margins slipping to 2.4% (3QFY13: 3.7%; 4QFY12: 3.3%).

At the top line, there was a y-o-y increase of 2.8% in sales volumes and 6.1% in average selling prices.

Segmentally, both retail and commercial segments recorded stronger revenues of RM3.8 billion (+11% y-o-y) and RM4.5 billion (+7% y-o-y) respectively. The retail segment enjoyed higher average selling prices of Mogas and Diesel while the commercial segment sold higher volumes of jet fuel with increased airline activity.

PetDag declared a dividend of 17.5 sen for the quarter under review, which brings FY13 net dividend per share (DPS) to 61.6 sen (representing a payout of 75%) — falling short of our full-year net dividend per share expectations of 75 sen. We are maintaining our FY14 and FY15F earnings projections pending its briefing for analysts.

PetDag is expensive at 28 times FY14F price-earnings ratio (PER) which is +2 standard deviation (SD) above its historical mean.

PetDag’s current share price implies net dividend yield of 2.1% for FY14F, which is less appealing to yield seeking investors. Although it has a resilient business model, current valuations are unjustified.

We maintain our fully valued call with RM19.70 target price based on 18 times FY14F PER pegged at 1SD above its mean. — HwangDBS Vickers Research, Feb 7