NEUTRAL, new MYR20.05 TP from MYR19.90, 5% downside with c.2% FY22F yield. Petronas Dagangan’s 1Q22 results missed expectations due to higher product prices, despite a higher sales volume (+20% YoY). Sales volumes for both the retail and commercial segments are expected to grow, but margins could be volatile. We also see higher trade payables in 1Q22, in order to manage the continuous growth in trade receivables.
Below expectations. At 17% and 18% of our and Street full-year estimates, PETD’s 1Q22 core earnings of MYR126m (-22% QoQ, -32% YoY) were below projections, from a weaker-than-estimated margin for the commercial division. A first interim DPS of 5 sen was declared (1Q21: 14 sen).
Results review. 1Q22 revenue grew by 7% QoQ on stronger ASPs (7%) amidst flattish sales volume. Even so, core earnings fell 22% QoQ, mainly dragged by a weaker commercial division which recorded a segmental loss of MYR41m (4Q21: MYR60m profit) as a result of higher product prices. This was cushioned by a stronger retail segment (+55%; lower opex, repair & maintenance costs). YoY, 1Q22 core earnings also declined by 32%, no thanks to the weaker commercial unit masking the more robust retail division (+18%; higher gross profits across all products). Note that, effective 1Q22, PETD has also classified the non-fuel activities which mainly encapsulates the Mesra convenience store income and Setel venture into a new division named Convenience. This unit returned to the black, with a PBT of MYR9m from MYR4m losses in 1Q21, led by higher Mesra sales.
Higher product costs crimped margins. Retail and commercial sales volume grew 18% and 23% YoY. We expect commercial sales volume to pick up subsequent to the re-opening of borders, as Malaysia transited to an endemic phase on 1 Apr. That said, margins could be under pressure, in view of the higher product prices. In the retail division, sales volume should also pick up in 2022, as we do not anticipate further movement restrictions domestically. Meanwhile, PETD’s operating cash flow improved to MYR989m in 1Q22, from -MYR608m in 4Q21 as the spike in trade payables (+39% QoQ) masked the increase in trade receivables (+18% QoQ). We believe this cushions its stretched cash flow, mainly from the escalated fuel subsidy from the Government amidst higher product prices.
We pare down FY22F earnings by 8% after imputing higher product costs, but our DCF-derived TP rises slightly to MYR20.05, after rolling forward our valuation base year to FY23F. We also incorporate a 2% ESG premium, based on its score of 3.1 out of 4. Although the first interim DPS only implies a 39% payout ratio, we expect it to normalise to 80% in 2022, vs the pre- pandemic average historical payout ratio of 78% (ex-special dividends). As such, the group offers decent FY22-24F yields of 2.4-3.1%.
