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This article first appeared in The Edge Financial Daily on November 10, 2017

Petronas Dagangan Bhd 
(Nov 9, RM21.44)
Maintain hold with an unchanged target price of RM24.31:
We hosted a non-deal roadshow in Europe in late October for Petronas Dagangan Bhd’s (PetDag) managing director cum chief executive officer Datuk Mohd Ibrahimnuddin Mohd Yunus, chief financial officer Norliwati Abdul Wahab and investor relations manager Nur Asyirin Ibrahim. As the European investors were not too familiar with PetDag, the meetings were largely introductory in nature. Still, investors were prepared with sharp questions and PetDag was obliging, hence the meetings were very productive.

Investors asked questions about the expected future growth of the petroleum products market in Malaysia, and the outlook for transportation fuel sales given the global shift towards energy-efficient vehicles (EEVs). PetDag acknowledged that fuel sales had been slow, in fact, declining around 5% year-on-year (y-o-y) in the first half of 2017, due to the improved Klang Valley public transportation system and weak consumer spending patterns. PetDag also noted that the Malaysian government was considering mandating sale of only EEVs by 2030.

In response to these challenges, PetDag said that it planned to install charging stations at 66 of its petrol stations by end-2017, rising to 100 stations by end-2018. The capital expenditure (capex) and operating expenditure for these charging stations would be borne by GreenTech, which is under the purview of the ministry of energy, green technology and water. 

Petronas’ forecasted early-2019 commissioning of its 300,000-barrels-per-day Pengerang refinery may result in a domestic surplus of refined products. As PetDag is a subsidiary of Petroliam Nasional Bhd (Petronas), we think that it has a slight edge over its retail competitors to secure this additional output, which may help PetDag push up its 60% commercial market share, in particular for jet fuel.

PetDag’s official dividend payout policy is 50% of net profit, although in 2015-2016, PetDag paid out about 75% of its net profit as dividend. Given its minimal capex and strong operating cash flow, investors wanted to know if PetDag would be willing to pay special dividends. However, PetDag did not commit, as it had not come under any pressure from Petronas to do so. We believe special dividends will be key to raising PetDag’s valuations. — CIMB Research, Nov 8


 

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