• Keep NEUTRAL, with new MYR22.58 TP from MYR20.15, 1% upside. Petronas Dagangan’s 9M22 results surpassed expectations led by stronger-than-expected commercial division as a result of favourable price trend. Sales volumes for the retail and commercial segments are expected to stay resilient but margins could be volatile. We expect the company’s operating cash flow to improve in 4Q22 following the receipt of the overdue subsidy payment from the Government.

• Above expectations. At 90% and 96% of our and Street full-year estimates, PETD’s 9M22 core earnings of MYR575m (+48% YoY) beat expectations due to stronger-than-expected contribution from the commercial division. A third interim DPS of 20 sen was declared (3Q21: 20 sen).

• Results review. 3Q22 revenue grew by 7% QoQ on stronger ASPs (+1%) and sales volume (+6%). Core earnings surged 74% QoQ on the back of stronger commercial division as a result of higher gross profit from Diesel and Jet A1 following favourable price trend, masking weaker retail division. Cumulatively, 9M22 core earnings also increased by 48%, thanks to the more robust retail division, led by 23% higher sales volume and higher gross profits across all products. The convenience division also recorded higher PBT of MYR23m (+31% YoY) led by higher Mesra sales.

• Outlook. Retail and commercial sales volumes grew 41% and 23% YoY in 3Q22. We expect commercial sales volume to pick up subsequent to the re-opening of borders and margins could normalise in the longer run. In the retail division, despite the strong sales volume recovery thus far, any slowdown in economic activities may affect the growth trajectory. Meanwhile, PETD’s operating cash flow has declined by MYR732m in 3Q22 as we continue to see expansion in trade receivables (+35% QoQ) and trade payables (+23% QoQ). PETD has received the overdue subsidy payment post 3Q22, and thus, we expect its operating cash flow to improve in 4Q22.

• We increase our FY22F-24F earnings by 7-13% after imputing higher contribution from commercial segment. As such, our DCF-derived TP rises slightly to MYR22.58, with the incorporation of a 2% ESG premium, based on its score of 3.1 out of 4. This implies a 27x FY23F P/E, which is slightly above its 5-year mean of 25x. At 80% dividend payout, vs the pre- pandemic average historical payout ratio of 78% (ex-special dividends), the group offers decent FY22F-24F yields of 2.6-3.3%.

Source: RHB Research - 30 Nov 2022