PETDAG (5681) - Petronas Dagangan - Drivers needed
Target RM13.83 (Stock Rating: REDUCE)
We maintain our forecasts and Reduce call following PetDag’s post-4Q14 results briefing on Friday, as the company still lacks exciting earnings drivers. In fact, retail expansion will be scaled back this year, as we expected, in line with Petronas’s expected capex reduction. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. Possible de-rating catalysts are further earnings disappointments. Switch to our top pick SapuraKencana.
What Happened
On Friday, around 30 analysts and fund managers attended PetDag's briefing, following its 4Q14 results announcement the day before. There were no surprises from the briefing. The company’s retail expansion will continue this year, albeit at a slower pace, as we highlighted in our previous notes. The construction of 45 stations was completed in FY14, bringing the total number of stations to 1,114 as at 31 Dec. Of the 45 stations, 25 stations are operational, while the remaining 20 await the authorities’ approval. Management plans to open 20-30 stations this year, in line with our expectations (excluding the 20 stations constructed in FY14 that have yet to be opened).
What We Think
The opening of fewer stations this year is in line with parent company Petronas’s expected capex cut of 15-20% in 2015. We estimate that PetDag’s FY15 capex will be reduced by 15% from RM500m to RM425m. In spite of the challenging operating environment, the opening of stations has to continue, albeit at a slower pace, as petroleum retail is very much a volume game. Furthermore, the stations generate income not only from the pumps, but also from Mesra convenience stores, which came to PetDag’s rescue in 4Q14 by keeping the company in the black when selling price pressure on fuel products hurt margins. EBIT margin collapsed from 2.3% in 4Q13 to 0.1% in 4Q14. As at 31 Dec 2014, PetDag’s retail market share (measured by the amount of petrol and diesel sold) stood at around 31%, making the company Malaysia’s second largest retailer after Shell, which had an estimated 34% share. Given the slowdown in retail expansion, we think that PetDag’s market share may come under pressure.
What You Should Do
For exposure to oil & gas big caps, we advise investors to switch to SapuraKencana.
Source: CIMB Daybreak - 16 February 2015
Target RM13.83 (Stock Rating: REDUCE)
We maintain our forecasts and Reduce call following PetDag’s post-4Q14 results briefing on Friday, as the company still lacks exciting earnings drivers. In fact, retail expansion will be scaled back this year, as we expected, in line with Petronas’s expected capex reduction. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. Possible de-rating catalysts are further earnings disappointments. Switch to our top pick SapuraKencana.
What Happened
On Friday, around 30 analysts and fund managers attended PetDag's briefing, following its 4Q14 results announcement the day before. There were no surprises from the briefing. The company’s retail expansion will continue this year, albeit at a slower pace, as we highlighted in our previous notes. The construction of 45 stations was completed in FY14, bringing the total number of stations to 1,114 as at 31 Dec. Of the 45 stations, 25 stations are operational, while the remaining 20 await the authorities’ approval. Management plans to open 20-30 stations this year, in line with our expectations (excluding the 20 stations constructed in FY14 that have yet to be opened).
What We Think
The opening of fewer stations this year is in line with parent company Petronas’s expected capex cut of 15-20% in 2015. We estimate that PetDag’s FY15 capex will be reduced by 15% from RM500m to RM425m. In spite of the challenging operating environment, the opening of stations has to continue, albeit at a slower pace, as petroleum retail is very much a volume game. Furthermore, the stations generate income not only from the pumps, but also from Mesra convenience stores, which came to PetDag’s rescue in 4Q14 by keeping the company in the black when selling price pressure on fuel products hurt margins. EBIT margin collapsed from 2.3% in 4Q13 to 0.1% in 4Q14. As at 31 Dec 2014, PetDag’s retail market share (measured by the amount of petrol and diesel sold) stood at around 31%, making the company Malaysia’s second largest retailer after Shell, which had an estimated 34% share. Given the slowdown in retail expansion, we think that PetDag’s market share may come under pressure.
What You Should Do
For exposure to oil & gas big caps, we advise investors to switch to SapuraKencana.
Source: CIMB Daybreak - 16 February 2015
