This article first appeared in The Edge Financial Daily on November 14, 2017

KUALA LUMPUR: Analysts expect Petronas Dagangan Bhd (PetDag) to declare higher-than-expected dividends or even a special dividend, given its sterling financial performance in the third financial quarter ended Sep 30, 2017 (3QFY17).

CIMB Research noted that over the past seven years, PetDag’s dividend payout ratio has never been lower than 75%, even though its official policy is 50%.

“Assuming [a] 75% payout on a record FY17 forecast (FY17F) net profit — aided by RM434 million in gains from the disposal of its Philippine and Vietnam businesses — we are expecting RM1.18 in dividend per share (DPS) for FY17F, of which only 28 sen has been paid to date.

“The 3QFY17 DPS of 20 sen will be paid on Dec 8, while we expect another 70 sen to be paid by mid-March 2018, or 3% yield over the next half year, which should drive the stock price,” the firm said in a note yesterday.

CIMB also upgraded its call on PetDag from hold to add, with a target price (TP) of RM24.41, to take advantage of its 11% share price decline over the past month, in addition to a 90 sen in expected DPS over the next six months.

In 3QFY17, PetDag sold its wholly-owned Petronas Energy Philippines Inc and its 40% stake in associate Duta Inc to Phoenix Petroleum Philippines Inc, netting a disposal gain of RM424.6 million. In Vietnam, the group sold its interest in Thang Long LPG Company Ltd to Noi Thuong Bac Joint Stock Company, which resulted in a RM6.2 million disposal gain.

MIDF Research thinks a special dividend may be in store for PetDag shareholders, given the total RM430.8 million disposal gains recorded, and as PetDag’s cash climbed to RM3.48 billion from RM2.57 billion in 2QFY17.

The firm, in a note yesterday, maintained its buy call on PetDag, with an unchanged TP of RM28 per share, premised on FY18 forecast price earnings of 28 times, pegged at a forecast FY18 earnings per share of 100.1 sen.

Likewise, UOB Kay Hian maintained its buy recommendation on PetDag, with a higher TP of RM27.50, compared with RM27.20 earlier.

“Moving forward, we believe the stock remains attractive with it being a direct beneficiary of a mild but steady uptrend in oil prices. Also, its premium valuation reflects its position as a market leader in a non-cyclical industry with minimal leverage position,” it said.

Last Friday, PetDag announced that its net profit in 3QFY17 jumped three times year-on-year (y-o-y) to RM761.73 million from RM248.76 million on higher sales volume, better margins and the disposal gains.

Revenue climbed 22.1% y-o-y to RM6.69 billion from RM5.48 billion, driven by a 3% rise in sales volume and an 18% rise in average selling price, in tandem with higher average Mean of Platts Singapore prices.

PetDag shares shot to RM25 on Oct 16, its highest since the collapse of crude oil prices back in the middle of 2014. Yesterday, its shares closed at RM23.70, with a market capitalisation of RM23.6 billion.