CIMB downgrades PetDag to “hold” after weak 1Q results, cuts target price

by **Cals** Wed 07 May 2014, 22:55

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Wednesday, 07 May 2014 10:27

KUALA LUMPUR (May 7): CIMB Research has downgraded Petronas Dagangan Bhd to “hold” from “add” and had lowered its target price to RM30.36 from RM33.60 after the group posted lower net profit for its first quarter ended March 31, 2014.
The research house also noted that the group’s share price had outperformed the KLCI since November 2010, and advised investors to “hold on to their shares”.
“We downgrade the stock to “hold” from “add” following the 154% share price outperformance versus the KLCI since our double upgrade in November 2010,” said CIMB in a note today.
The group reported net profit of RM155.1 million for 1QFY14, down 35% year-on-year, despite y-o-y revenue growth of 9% to RM8.29 billion.
“We are encouraged by Petronas Dagangan's topline growth, which continued to benefit from a wider network of petrol stations and higher demand for key non-retail products, in particular LPG and jet fuel.
“However, the topline expansion was achieved at the expense of margins as the company ramped up its distribution channels and spent more on advertising and promotions to fend off competition,” said the research house.
Petronas Dagangan had also announced a single-tier interim dividend of 12 sen per share, which is lower than the usual quarterly dividend of 13.1 sen per share.
Despite the weaker performance in 1QFY14, CIMB said the company’s expansion plans are intact, as it aims to overtake Shell, the market leader in retail and lubricants over the next two years.
The company is also committed to an annual capex of RM500 million to fortify its local operations, and has allocated RM200 million to improve its regional operations in the Philippines, Vietnam and Thailand over two or three years.