PETDAG (5681) - Petronas Dagangan - Putting the brakes on growth
Target RM13.83 (Stock Rating: REDUCE)
PetDag’s earnings decelerated in FY14 with net profit missing the mark, forming only 75% of our forecast and consensus. We believe this is mainly due to losses made by non-APM products in 4Q. However, the company softened the blow with a special interim DPS of 22 sen, taking the full-year DPS to 60 sen and the payout ratio to 119%. Our target price falls as we cut our FY15-16 EPS on lower revenue assumptions. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. Potential de-rating catalysts are these weak results and further earnings disappointments. We maintain Reduce and recommend a switch to our top pick SapuraKencana.
38% fall in FY14 net profit
PetDag's 4Q net profit slumped 99.7% yoy to RM0.4m, the lowest quarterly net profit since our initiation in FY07. We think that the main contributory factor was the selling price pressure, especially on non-automatic pricing mechanism (APM) products such as jet fuel, due to the softening of oil price that started in 3Q. As the pricing of the non-APM products is not fixed, unlike petrol, diesel and cooking gas, PetDag is exposed to oil price fluctuations and could have been selling non-APM products below cost. We think that the convenience store business, Mesra, played a substantial role in preventing PetDag from slipping into a net loss in 4Q. FY14 net profit fell 38% yoy to RM502m due to the 4Q weakness.
119% dividend payout ratio
PetDag lessened the earnings disappointment by announcing a special interim DPS of 22 sen, bringing its full-year DPS to 60 sen which surpassed our 48 sen forecast. The full-year DPS translates into a robust payout ratio of 119% that far exceeded the company’s payout policy of 50%. Dividends are paid quarterly.
Benefits from managed float
PetDag’s 1Q15 performance should improve given the oil price rebound and the implementation of managed float system for RON 95 petrol and diesel since 1 Dec 2014. Nonetheless, we cut our FY15-16 EPS by 6-17% on lower revenue assumptions. The managed float system works for PetDag as it reduces the amount of subsidy receivables, thus improving the company’s cashflow. The company continues to collect a fixed company margin of 5 sen/litre for RON95 and diesel.
Source: CIMB Daybreak - 12 February 2015
Target RM13.83 (Stock Rating: REDUCE)
PetDag’s earnings decelerated in FY14 with net profit missing the mark, forming only 75% of our forecast and consensus. We believe this is mainly due to losses made by non-APM products in 4Q. However, the company softened the blow with a special interim DPS of 22 sen, taking the full-year DPS to 60 sen and the payout ratio to 119%. Our target price falls as we cut our FY15-16 EPS on lower revenue assumptions. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. Potential de-rating catalysts are these weak results and further earnings disappointments. We maintain Reduce and recommend a switch to our top pick SapuraKencana.
38% fall in FY14 net profit
PetDag's 4Q net profit slumped 99.7% yoy to RM0.4m, the lowest quarterly net profit since our initiation in FY07. We think that the main contributory factor was the selling price pressure, especially on non-automatic pricing mechanism (APM) products such as jet fuel, due to the softening of oil price that started in 3Q. As the pricing of the non-APM products is not fixed, unlike petrol, diesel and cooking gas, PetDag is exposed to oil price fluctuations and could have been selling non-APM products below cost. We think that the convenience store business, Mesra, played a substantial role in preventing PetDag from slipping into a net loss in 4Q. FY14 net profit fell 38% yoy to RM502m due to the 4Q weakness.
119% dividend payout ratio
PetDag lessened the earnings disappointment by announcing a special interim DPS of 22 sen, bringing its full-year DPS to 60 sen which surpassed our 48 sen forecast. The full-year DPS translates into a robust payout ratio of 119% that far exceeded the company’s payout policy of 50%. Dividends are paid quarterly.
Benefits from managed float
PetDag’s 1Q15 performance should improve given the oil price rebound and the implementation of managed float system for RON 95 petrol and diesel since 1 Dec 2014. Nonetheless, we cut our FY15-16 EPS by 6-17% on lower revenue assumptions. The managed float system works for PetDag as it reduces the amount of subsidy receivables, thus improving the company’s cashflow. The company continues to collect a fixed company margin of 5 sen/litre for RON95 and diesel.
Source: CIMB Daybreak - 12 February 2015
