Hot Stock PetDag falls 6.7% on potential cutback in fuel trade with MAS

by **Cals** Wed 21 May 2014, 17:15

Hot Stock PetDag falls 6.7% on potential cutback in fuel trade with MAS

Business & Markets 2014

Written by Jeffrey Tan of theedgemalaysia.com

Wednesday, 21 May 2014 12:04

KUALA LUMPUR (May 21): Petronas Dagangan Bhd (PetDag) fell as much as 6.7% due to a potential cutback in the firm’s jet fuel trade with Malaysian Airline System Bhd (MAS).

The cutback is in anticipation that ailing national carrier MAS may terminate routes effective next year to stem losses.

At 11.41am, PetDag lost RM1.16 or 4.7% to RM23.62. The top decliner saw trades of some 859,000 shares.

Earlier, the stock fell RM1.66 to a low of RM23.12.

In a note, CIMB Investment Bank analyst Norziana Mohd Inon said she lowered the research firm's FY15 and FY16 earnings per share forecast for PetDag to impute a 10% reduction in the company's jet fuel sales volume.

Norziana also lowered CIMB's target price for PetDag shares to RM27.63 from RM30.36, but maintained the "hold" call for the stock.

“As the main supplier of jet fuel to MAS, PetDag could be affected by the national carrier's route rationalisation,” said Norziana, noting PetDag currently controls about 70% of Malaysia’s jet fuel market.

This compares with 63% as at March 2007.

On MAS, Norziana said “Our base case is a 14% reduction in its flights in FY15, leading to an 18% reduction in passengers."

She said a review on MAS' route network would be negative for PetDag.

But lower jet fuel requirement from MAS could be mitigated by higher take-up by foreign airlines or new supply contracts,” said the analyst.

Meanwhile, Kenanga Research said in a note PetDag's share price would see immediate technical support and resistance levels at RM24.81 and RM26.37 respectively.