KUALA LUMPUR (Aug 22): CIMB IB Research and AllianceDBS Research have maintained their respetive "Hold" ratings on Petronas Dagangan Bhd (PetDag), with target pricea of RM24.31 and RM24.92 respectively.

This comes as PetDag’s second quarter (2QFY17) core net profit of RM231 million were reported to be below CIMB’s expectations, but in line with analysts’ consensus.

“PetDag’s RM231 million core net profit in 2Q17 was 14% lower y-o-y (year-on-year), on the back of a drop in the retail arm’s operating profit (EBIT), while the commercial EBIT was largely flat y-o-y.

“The weaker profits at the retail segment were caused by unfavourable movements in inventory costs, despite the increase in average selling prices. The commercial segment was unaffected by inventory costs, as selling prices are on a cost-plus basis,” CIMB’s Raymond Yap wrote in his research note today.

Furthermore, Yap wrote that the 5% contraction in sales volume was attributed to the decline in retail and commercial volumes of 4% and 6% respectively.

“We believe this may have been caused by the expansion of the LRT network and the commencement of the Phase 1 of the MRT services from the Sungai Buloh to Semantan, as well as the weak consumer sentiment in Malaysia that led to the fall in retail sales.

“Commercial volumes fell, most likely due to PetDag’s deliberate strategy of letting go of its lower-margin business,” Yap added.

Despite recording lower sales volume, both the retail and commercial segments posted higher revenue, according to AllianceDBS Research's Cheah King Yoong.

“Retail revenue improved by 18% y-o-y to RM3.4 billion, supported by 24% y-o-y increase in ASP (average selling price), led by both higher Mean of Platts Singapore (MOPS) and diesel prices, partially mitigated by 4% reduction in sales volume.

“Commercial revenue improved by 26% y-o-y to RM3.1bn, due to the higher ASP (+34% y-o-y), despite 6% lower volume,” Cheah wrote in his note today.

“Despite fluctuations in oil price, we believe that the group is poised to experience lower earnings volatility going forward, due to weekly (rather than monthly) adjustment of retail selling prices since March 30, which allows more timely pass on of oil price fluctuations, and lower inventory period of 4-5 days at present, compared with 9-10 days previously, to mitigate inventory gains/losses,” Cheah added.

Yesterday, PetDag reported a 14% rise in net profit for 2QFY17 to RM246.04 million, from RM214.95 million a year ago, as both its retail and commercial segments reported better operating profits with higher selling prices.

Revenue grew 22% year-on-year to RM6.51 billion, from RM5.33 billion, as average selling prices rose 28%, although the improved top line was offset by a 5% drop in sales volume.

For the 1HFY17 ended June 30, 2017, the group posted a 15% rise in net profit to RM499.2 million, from RM434.35 million in 1HFY16, while revenue grew 29% to RM13.19 billion, from RM10.24 billion, on a 35% rise in average selling prices.

At 11.16am, PetDag fell 2 sen to RM23.98, with 2,200 shares traded.